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How is an NRI taxed on house leased in India?

I will become a non-resident Indian (NRI) this financial year for tax purposes. I own one property in Delhi, which has been leased out for five years. Which ITR form should I fill?

— Name withheld on request

Rental income from the property situated in India is taxable in the hands of the owner of the house. The method of computing taxable rental income is prescribed under the income-tax law as follows:

Gross Annual Value (GAV) less municipal taxes actually paid gives the net annual value (NAV). Reduce standard deduction of 30% of NAV and interest on housing loan from this, which will then be the taxable rental income.

GAV is higher of the amount at which the property might be expected to be let out; or actual rent received or receivable.

In other words, GAV compares the actual rent received or receivable with expected rent that property would fetch.

If there is loss under the head income from house property from let out property due to interest expenditure on housing loan being higher than NAV less 30% standard deduction, such loss can be set off against income under other heads of income only to the extent of 200,000 and the balance can be carried forward for up to 8 years for set-off against future income from the house.

Also, any repayment of principal amount against housing loan taken from eligible lenders for acquisition of such property is also eligible for deduction under section 80C (maximum deduction is 150,000). But this deduction is not available if the individual opts for benefit of lower tax rate under the new tax regime under section 115BAC. Besides, any loss incurred under income from house property would not be allowed to be set-off against any other income and carried forward under new tax regime.

As a non-resident under the India I-T law, you may file your ITR under ITR-2 (if you do not have any business income) or ITR-3 (if you have business income). This may change once the composite tax return form is notified.

Sonu Iyer is tax partner and people advisory services leader, EY India.

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