Tax on US Rental Income in India for Returning NRIs

For an individual returning to India with rental income in the USA, understanding the taxation of foreign income in India is essential. Upon returning to India and after attaining Resident and Ordinarily Resident (ROR) status, your global income becomes taxable in India, including your rental income from properties in the United States.

Yes, after becoming an ROR, if you are still earning income from the USA, Indian taxation also applies to it.

Many NRIs who return to India continue to own rental properties in the United States. Once their residential status in India changes to Resident and Ordinarily Resident (ROR), the Income Tax Act requires them to report their worldwide income, including US rental income, while filing their Indian Income Tax Return (ITR).

In this blog, we will discuss how your US rental income is taxed in India, how you must disclose it while filing your ITR, how to claim Foreign Tax Credit (FTC) under the DTAA between India and the USA, and more.

We will break the topic into smaller sections to help you better understand the concept.

What Happens to US Rental Income After Returning to India?

As an NRI returning to India who qualifies as a Resident and Ordinarily Resident (ROR), your global income becomes taxable in India, including income from foreign sources such as rental properties in the United States.

As a returning individual with ROR status, if you are filing an income tax return in India, you must disclose all your foreign assets and income using Schedule FA and Schedule FSI.

Is Rental Income from US Property Taxable in India for RORs?

Yes, as an individual with ROR residential status, rental income from a property in the USA is entirely taxable in India under the head Income from House Property (Sections 22–27 of the Income Tax Act).

How to Report US Rental Income in Your Indian ITR

As an ROR, if you have foreign rental income, you are required to complete the following schedules and forms in your ITR.

To correctly report US rental income in your Indian Income Tax Return:

• Use Schedule FSI (Foreign Source Income) to disclose foreign rental income.
• Use Schedule FA (Foreign Assets) to report details of your US property.
• File Form 67 to claim the Foreign Tax Credit (FTC) for taxes paid in the United States.

US Rental Income Tax for Returning NRIs

Tax Treatment of US Rental Income Under US Tax Law

If you are categorized as a Non-Resident Alien (NRA) under United States taxation law:

Default Taxation

A 30% flat tax applies to the gross rental income.

• There are no deductions or credits available under the default taxation rule.
• This tax is deducted by the US property manager or through self-filing Form 1040-NR.

A Better Alternative to 30% Default Taxation

File Form 1040-NR with the Section 871(d) election.

Under this option:

You declare the rental income as Effectively Connected Income (ECI).

This allows you to deduct expenses such as:

• Mortgage interest
• Property taxes
• Depreciation
• Maintenance expenses

After deductions, tax is paid on net rental income instead of gross income, which can significantly reduce the tax liability.

India–US DTAA – Double Taxation Relief

India and the United States have signed a Double Taxation Avoidance Agreement (DTAA).

The benefits under DTAA:

• Avoiding taxation of the same rental income in both countries.
• Claiming tax credit in India for taxes already paid in the United States.

To claim the Foreign Tax Credit (FTC) in India:

You must file Form 67 before or along with your income tax return.

Documents Needed to Claim DTAA Benefits

• Form 1040-NR return copy
• Rent receipts and proof of tax paid in the USA
• Bank statements showing rental deposits

Step-by-Step Checklist for RORs to Stay Compliant

Here is a table outlining the actionable steps you must take to stay compliant as an ROR earning rental income from the USA.

Common Mistakes Returning RORs Make Regarding US Rental Income Disclosure

Here are some common mistakes individuals returning to India with ROR status make that you should be mindful of.

• Reporting rental income from US properties under "Other Sources" instead of "Income from House Property".
• Failing to disclose foreign assets in Schedule FA while filing the income tax return in India.
• Missing the deadline for Form 67, which leads to denial of the Foreign Tax Credit (FTC).
• Not opting for the 871(d) election, and ending up paying a 30% flat tax on gross income in the United States.
• Assuming you are still an NRI after returning to India, and believing that foreign income will not be taxable.
• Not converting US rental income into INR using the prescribed SBI TT buying rate while reporting it in the Indian Income Tax Return.

The Bottom Line

Understanding the taxation implications as an individual returning to India with rental income in the United States is essential. Right from the India–US DTAA to benefits under the tax treaty and the 871(d) election, understanding these details is crucial so that you do not end up paying taxes twice.

For individuals returning to India with foreign rental income, proper tax planning under the India–US DTAA, correct ITR disclosure, and claiming Foreign Tax Credit (FTC) can significantly reduce the risk of double taxation.

To cut a long story short, what smart individuals returning to India with foreign income do is seek professional guidance from experts experienced in NRI taxation and cross-border compliance.

One such professional is SaveTaxs, which helps RORs and NRIs file accurate ITRs using Schedule FSI and FA. Our experts also assist with Form 67 tax credit submissions, DTAA interpretation, US tax return filing, and the Section 871(d) election.

SaveTaxs has been serving NRIs and returning residents for years, and our expertise speaks through the results we deliver. Connect with us today and let us handle your cross-border rental income taxation issues after returning to India.