The basic principle: A 'resident' (and particularly a 'resident and ordinarily resident') for Indian tax purposes is taxed on their global income, which includes rental income from property situated anywhere in the world, not just income earned or received in India. This is in contrast to non-residents, who are taxed only on income that accrues, arises, or is received in India. So once an individual's residential status for a financial year is 'resident and ordinarily resident', foreign rental income enters the Indian tax computation.
Computing the Foreign Rental Income Under Indian Rules
Even though the property is located abroad, the income from it is computed under the Income from House Property provisions of Indian tax law, in the same manner as for an Indian property, meaning the standard 30% deduction for repairs/maintenance and deduction for any home loan interest (on a loan taken for that foreign property, where applicable) are computed following Indian rules, after converting the relevant figures (rent received, municipal taxes paid abroad if allowable, etc.) into Indian Rupees using the prescribed conversion approach.
Relief for Tax Paid Abroad: Foreign Tax Credit
If tax has also been paid in the foreign country on this rental income (as is common, since most countries tax rental income from property situated within their borders regardless of the owner's residence), double taxation relief is available, either under the relevant DTAA between India and that country, or under the domestic foreign tax credit provisions where no DTAA exists or where the DTAA does not otherwise provide relief, allowing credit for the foreign tax paid against the Indian tax liability on the same income, subject to the conditions and limits of the applicable provision.
Worked Example
A returning professional with a rented-out overseas flatMr Rao worked abroad for several years and bought an apartment there, which he continues to rent out after returning to India and becoming a resident for tax purposes. The apartment generates rental income equivalent to roughly Rs 9,00,000 per year (after converting from the foreign currency), and the foreign country deducts tax on this rental income at source, equivalent to roughly Rs 1,35,000. In his Indian return, Mr Rao computes his house property income from this apartment (applying the 30% standard deduction under Indian rules, giving net income of roughly Rs 6,30,000), which is added to his other Indian income for determining his total tax liability. He then claims foreign tax credit for the Rs 1,35,000 foreign tax already paid on this rental income, against his Indian tax liability attributable to this income, subject to the prescribed computation and documentation (such as proof of foreign tax payment) required to claim this credit.
Reporting in Schedule FA
Beyond the income itself, owning foreign property as a resident also triggers reporting obligations under Schedule Foreign Assets (Schedule FA) of the ITR, which requires disclosure of foreign assets held during the relevant period, including immovable property, regardless of whether the property generates any income. This is a disclosure requirement separate from, but related to, the income reporting requirement for the rental income itself.
RNOR Status: A Temporary Reprieve for Returning NRIs
Individuals returning to India after a long period abroad may qualify for 'Resident but Not Ordinarily Resident' (RNOR) status for a limited number of years, during which income that accrues or arises outside India (such as foreign rental income, in many cases) is not taxable in India unless it is derived from a business controlled from, or a profession set up in, India. This RNOR window, covered in our dedicated article on RNOR status, can provide temporary relief from Indian tax on foreign rental income for returning professionals, before full resident taxation on global income applies.
Frequently Asked Questions
Do I need to report foreign rental income even if the rental money is kept in a foreign bank account and never remitted to India? ▼
Yes, for a resident and ordinarily resident, global income is taxable in India regardless of whether it is remitted to India or retained abroad. The obligation to report the income and pay any resulting Indian tax (after foreign tax credit) is not contingent on the funds being brought into India. Separately, the foreign bank account itself, and the property, would also need to be reported under Schedule FA.
How do I convert foreign currency rental income into Indian Rupees for my ITR? ▼
Foreign currency income generally needs to be converted into Indian Rupees using a prescribed rate of exchange (typically the telegraphic transfer buying rate on a specified date, such as the last day of the month preceding the month in which the income is due or received, depending on the rule applicable to the type of income). Maintaining a clear record of the foreign currency amounts and the conversion basis used is important for both the income computation and any foreign tax credit claim.
If the foreign country does not tax rental income at all, can I still claim any relief in India? ▼
Foreign tax credit relief is specifically for tax actually paid in the foreign country; if no tax is paid there (because that country does not tax such income, or due to local exemptions), there is no foreign tax to credit against the Indian liability, and the rental income would be taxed in India in full under the normal computation, without any offsetting credit, since there is nothing to offset.