May 06, 2025

USA Rental Income After Returning to India – Complete Tax Guide for RORs

Are you a Returning Indian Resident earning rental income from the USA? If yes, understanding the taxation of foreign rental income in India is essential. Once you become a Resident and Ordinarily Resident (ROR) under Indian income tax laws, your global income — including USA rental income — becomes fully taxable in India.

In this detailed blog, we explain:

How your U.S. rental income is taxed in India
What to disclose in your Indian tax return
How to claim Foreign Tax Credit (FTC) under the India-USA DTAA
IRS tax implications for returning Indians

Let’s break it down step by step.

What Happens to My USA Rental Income After I Return to India?

After moving back to India, if you are an NRI returning to India who qualifies as a Resident and Ordinarily Resident (ROR):

Your worldwide income is taxable in India, including income from foreign properties like your U.S. rental homes
You must disclose your foreign assets and income in Indian tax return using Schedule FA and FSI

Is USA Rental Income Taxable in India?

Yes. As a ROR, rental income from a property in the USA is fully taxable in India under the head Income from House Property (Sections 22–27 of Income Tax Act).

Indian Tax Calculation:

Gross Annual Value (total rent received in USD)
Less: Municipal taxes paid in the U.S.
Less: 30% standard deduction (as per Indian law)
Less: Interest on home loan (if any)

Final Net Taxable Income – taxed at applicable Indian slab rates

Pro Tip: Use exchange rate as per RBI on last day of the previous financial year.

Mandatory Disclosures in ITR

If you have foreign rental income, you are required to fill the following schedules in your Indian Income Tax Return:

Disclosure Type	ITR Schedule
Foreign Rental Income	Schedule FSI
USA Property Details	Schedule FA
Claim of Foreign Tax Credit	Form 67

USA Tax Treatment – For Returning Indians

If you're classified as a Non-Resident Alien (NRA) under U.S. tax law:

Default Taxation:

30% flat tax on gross rental income (no deductions)
Deducted by U.S. property manager or via self-filing 1040-NR

Better Alternative – Electing IRC Section 871(d):

File Form 1040-NR with 871(d) election
Declare rental income as Effectively Connected Income (ECI)
Allows you to deduct mortgage interest, property tax, maintenance, depreciation, etc.
Pay tax on net income, not gross

Once made, the election remains in effect unless revoked.

Double Taxation Relief – DTAA Between India and USA

India and the U.S. have a Double Taxation Avoidance Agreement (DTAA India USA).

Benefits Under DTAA:

Avoid paying tax twice on same rental income
Claim credit in India for tax already paid in the U.S.
File Form 67 before or with your ITR to avail FTC

Documents Needed:

1040-NR return (or equivalent)
Rent receipts and tax paid proof
Bank statements for rental deposits

Step-by-Step Checklist to Stay Compliant

Action Item	Mandatory?	Where to Report
Determine Residential Status (ROR/NRI)	✅	Indian ITR, Form 10E
Report USA Rental Income	✅	Schedule FSI
Disclose USA Property	✅	Schedule FA
Claim U.S. Tax Credit	✅	Form 67
Elect 871(d) for IRS Tax Benefits	Optional	Form 1040-NR
Maintain All Supporting Documents	✅	For both IRS & India IT

Common Mistakes by Returning NRIs

Reporting rental income under "Other Sources" instead of “House Property”
Not disclosing foreign assets in Schedule FA
Missing Form 67 deadline – leading to denial of tax credit
Not electing 871(d) – paying unnecessary 30% flat tax in U.S.
Assuming NRI status even after becoming ROR

FAQs – USA Rental Income in India

Q1: Is U.S. rental income taxable in India for NRIs?
Only if you're a Resident and Ordinarily Resident (ROR). NRIs are taxed only on Indian income.

Q2: Can I claim tax paid in USA in my Indian return?
Yes, through Form 67 under India-USA DTAA, you can claim Foreign Tax Credit.

Q3: Do I need to file returns in both India and USA?
Yes, if you're earning in both countries. India taxes worldwide income for RORs, and USA requires non-residents to file 1040-NR.

Q4: What happens if I don't disclose U.S. property in ITR?
Non-disclosure may lead to penalties under the Black Money Act, especially for high-value assets.

Real-Life Example

Mr. A returned to India in FY 2023–24 and qualifies as ROR. He earns USD 15,000 annually from a rented house in Texas.
He pays USD 1,500 in U.S. property tax and claims 30% deduction in India.
After 871(d) election, he deducts mortgage interest & expenses in USA and pays tax on net income.
In India, he files Schedule FA & FSI, and submits Form 67 to claim tax credit for U.S. taxes.