Q – Ought to a resident Indian having rental earnings from the US, take the good thing about depreciation and different reliefs allowed within the US and provide for tax on home property earnings on a web foundation in India?
—Identify withheld on request
No, a resident Indian incomes rental earnings from a property positioned within the US can not instantly declare depreciation and different deductions allowed beneath US tax legal guidelines to compute the online rental earnings when providing it for tax in India. The taxation of such earnings in India falls beneath the top “Revenue from Home Property,” and particular guidelines beneath the Indian Revenue Tax Act have to be adopted.
Taxation in India:
Beneath Indian tax legal guidelines, rental earnings from a property, regardless of its location, is taxable on a gross foundation, which permits restricted deductions. Solely municipal taxes paid and a normal deduction of 30% on the web annual worth (gross rental earnings minus municipal taxes) are permitted. Depreciation and different bills allowed beneath US tax legal guidelines (upkeep, insurance coverage or utilities) usually are not acknowledged beneath Indian tax provisions. Thus, the rental earnings calculated within the US for US tax functions can’t be instantly used for Indian tax filings.
India has signed a Double Taxation Avoidance Settlement (DTAA) with the US to stop double taxation of the identical earnings. Whereas the rental earnings could also be taxed within the US beneath US legal guidelines, the taxes paid there will be claimed as a international tax credit score in India. This reduces the general tax burden however doesn’t exempt the earnings from being taxed in India. It’s important to compute the FTC in accordance with Indian tax guidelines and preserve applicable documentation, together with tax filings within the US.
Compliance Obligations:
Resident Indians are required to report all international belongings, together with property within the US, and related earnings of their Indian earnings tax return beneath the International Asset and Revenue Schedule. Correct information of bills, receipts and US tax filings have to be maintained for audit and compliance functions. Any discrepancy or non-reporting can lead to penalties beneath Indian tax legal guidelines.
Whereas the US tax system permits deductions like depreciation, these usually are not legitimate for Indian tax functions. The earnings have to be taxed in India based mostly on gross rental earnings with restricted deductions. To mitigate double taxation, the advantages beneath the DTAA will be availed. NRIs and resident Indians incomes international earnings are suggested to observe compliance guidelines meticulously and seek the advice of a tax skilled for correct computation and reporting. Making certain correct documentation and disclosures is essential to keep away from any compliance points with tax authorities.
Ajay R. Vaswani – Founder – ARAS AND COMPANY, Chartered Accountants
