What is deemed Income Tax and how does it affect an NRI?

According to the Indian Income Tax Act, if a person (resident or NRI) owns more than one house property, only one of them will be deemed as self-occupied. There will be no income tax on a self-occupied property. The other one, whether you rent it out or not, will be deemed to be given on rent. If you have not given the second property on rent, you will have to calculate deemed rental income on the second property (based on certain valuations prescribed by the income tax rules) and pay the tax thereof.

Now, the Income Tax Act does not specify if either or both these properties must be situated only in India. At the time of drafting the Income Tax Act, one did not envisage a situation where an Indian would own properties overseas. But now, more and more Indians are settling abroad. So from the reading of the Act, the rule of ‘more than one property’ will apply to global properties.

What this means is that if you are an NRI and own only one property globally and that property is in India, you would not have to pay any income tax on the ‘deemed rental income’ in India.

However, let us say you are an NRI resident in USA. You own and live in a house in USA. You also own a house property in India. Even if you do not give the property in India on rent, you would have to pay income tax on deemed rent in India. The deemed rent is determined by certain valuation rules prescribed in the Income Tax Act.

Remember that even if you have inherited a property in India and that is not your only property, you would have to pay tax on deemed income.

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