Q.801 Taxation of UK Rental

Income for OCI living in India

Question: Hello Virendar Your site is very informative and I would like to ask for clarification regarding the new tax section being introduced by Indian Goverment. I got my British Citizenship in 2003 and acquired a OCI too in the same year. I relocated to India in 2011 and now live and work in India for an Indian company and pay income tax in India and file returns on time. I have flat in the UK which is on rent since I returned. The flat is registered under mine and my wife's name. Post mortgage interest there is a residual income which I maintain in the UK bank account. My questions 1. Do I have to declare this asset and the rental income in India? 2. I file my UK tax return yearly, which I understand is required by Dual Taxation treaty signed between UK and India. 3. Does the rental income attract tax if I transfer the same to my account in India? Thanks in advance for your help. Cheers Balaji Palanidurai Answer: Under provisions of the Tax Treaty between India/UK as per Article 6 Income from Immovable Property ‘Income from immovable property may be taxed in the Contracting State in which such property is situated’ so your rental income is taxable in UK and perhaps MAY be taxable in India also depending on your tax slab in India. Tax payable in UK • Since the DTAA between India/UK when referring to income from property uses the words ‘may be taxed’ and not ‘taxed only in that Contracting State.’ UK has the first right to tax your rental income as property is located in UK. Tax payable in India • As you have lived in India for more than three years your RNOR status has long expired and your worldwide income is taxable in India, hence you may also have to have to pay tax in India on UK rental income depending on the tax slab that your income falls under. Under the o DTAA you will be able to claim credit for tax paid in UK on rental income with may reduce or negate tax payable in India on your UK rental income. My understanding is the tenants in UK who pay rent directly to UK non-resident landlords, are required to deduct applicable tax from rent to forward to the UK Revenue department unless the absentee landlord has filled the appropriate exemption form with the UK tax department. [To view applicable form click: Application to receive UK rental income without deduction of UK tax] Any money transfered to India from UK should be tax free in India. However, UK taxes are payable by Non-UK residents on any income derived from within UK, so your rental income will attract tax even if the money is transfered to India. Best way to handle tax situations and getting help interpreting tax treaty exemptions is to seek advice from a reliable tax professional in your area of residence.