NRIs love investing in real estate. And many do invest. But once the initial euphoria of buying a property in India wanes, the reality kicks in. What to do with the property?
Should You Rent It Out or Lock It?
Rent it. Renting the property is your safest insurance against disuse. Moreover, you also generate income from your property. However, the many stories of landlord-tenant conflicts make one wonder whether renting is the right choice.
Tenant-landlord conflict is the flip side of renting out property, but the pros outweigh the cons. The property is an asset that can generate income. There is a better chance that the tenant will maintain the property well. And there are means to mitigate conflicts.
Power of Attorney
First and foremost, give power of attorney to a person residing in India whom you trust. A power of attorney can take a lot of your worries away. This person can help you deal with your tenants when you are abroad.
Needless to say, rental agreements are the basis of your relationship with your tenant. But what matters here is how detailed the deal is. Below is a list of some essential details that your agreement with the tenant should include:
- The current condition of the property
- A list of things in the property at the time of move-in
- The rent and advance payment
- Rent increment schedule
- The validity of the agreement
Register the Agreement
If you are renting your property for more than 11 months, then register the rental agreement. Contract registration is not a choice, as the law mandates it. The contracts are registered at the local registrar’s office.
Failure to register a rental agreement can invite a severe penalty. You may end up paying a fine at the rate of 18 percent of registration charges from the day you inked the contract.
Verify your tenant’s background. Keep a copy of your tenant’s proof of identity, proof of permanent address, and (if possible) employment records. You can also approach the local police station to avoid letting your property to a criminal. Some Indian states mandate a police verification of your tenant(s).
Get a no-objection certificate from the residents’ association if you live in a gated community. The certificate can pre-empt any problems when the tenant moves in.
Evicting A Tenant
The Rent Control Act of 1948 governs the landlord-tenant relationship in India. The law stipulates a rental agreement signed by the tenant and the owner. The law also provides the grounds for an owner to evict a tenant. Some of these grounds for eviction include:
- The tenant doesn’t pay rent after 15 days of the due date.
- The tenant sublets without your permission.
- You want to demolish the occupied building and construct a new one.
- You want the property for yourself or your family.
- The tenant’s actions have reduced the value of the property.
- Maintenance that requires eviction of the tenant.
- The tenant used the property for illegal activities.
- You receive complaints against your tenant from the neighborhood.
How to Evict a Tenant
After you have exhausted amicable solutions, you can seek legal help to evict your tenant. First, you should file for an eviction notice under the applicable jurisdiction. The notice should have the reason as well as a reasonable timeframe for your tenant to vacate.
If the tenant refuses to vacate despite the court’s notice, file an eviction suit through your lawyer at the appropriate court. The final stage is when the court hears both sides and serves the tenant ultimate notice to vacate. This order is binding on the tenant.
What Shouldn’t You Do to Evict a Tenant?
Refrain from resorting to criminal activities to evict the tenant, such as disrupting utility supplies, changing the locks and/or locking out the tenant, throwing the tenant’s possessions out of the house, etc.
Tax and Tenants
An NRI can repatriate the rental income, but only after the tenant has deducted 31.2 percent in Tax Deducted at Source (TDS) from the rent. Failure to do so could result in the tenant being imprisoned. After the rent payment, the tenant must fill out Form 15CA and submit it on the Indian income tax department website.
If the total rent exceeds ₹5 lakhs in a year, the tenant must obtain Form 15CB. A chartered account then attests to the printed form. The tenant should upload the signed Form 15CB with Form 15CA.
Lower or No TDS on Rent
Apply for a low or zero TDS if your income from India is less than the exemption limit. You can submit Form 13 before the concerned TDS assessing officer, who would then issue an order to reduce or remove TDS.
Points to Remember
- All rent payments from India can be made to your NRO account only.
- RBI allows rent income in NRO account to be repatriated.
- Rent can be received in an NRE account only if the payment is made from an NRE account.
- The tenant can remit rent to your foreign account only after a chartered accountant certifies that all taxes have been paid.
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