Rent From A Mohali Home Owned From Abroad: When It Can Go Into An NRE Account विदेश से रखे मोहाली के घर का किराया: यह एनआरई खाते में कब जा सकता है ਵਿਦੇਸ਼ ਤੋਂ ਰੱਖੇ ਮੋਹਾਲੀ ਦੇ ਘਰ ਦਾ ਕਿਰਾਇਆ: ਇਹ ਐੱਨਆਰਈ ਖਾਤੇ ਵਿੱਚ ਕਦੋਂ ਜਾ ਸਕਦਾ ਹੈ

An owner who lives in Toronto or Birmingham and lets out a flat in Mohali has to give the tenant a bank account for the rent. Many owners assume the rent can only go into a non-resident ordinary account, known as an NRO account. They also assume the money is then stuck behind the yearly ceiling on NRO remittances. The Reserve Bank's rules say something more useful. Rent is current income, and current income can also be credited to a non-resident external account, known as an NRE account, once the bank is satisfied about it.

A resident landlord in Mohali never faces this choice. NRE and NRO accounts exist only for people who live outside India, and the rules on which one may receive the rent apply only to them.

The two accounts in brief

Both accounts are rupee accounts held with a bank in India. The difference is where the money in them may go.

An NRE account holds money that is treated as already belonging abroad. The balance and the interest on it can be sent out of India freely. The Foreign Exchange Management Deposit Regulations of two thousand and sixteen set out the account in their first schedule.

An NRO account holds money earned or held in India. Its balance can be sent abroad only within the limit set in the Reserve Bank's Master Direction, and only with the tax paperwork. The bank holding the account can confirm that limit as it currently stands. The third schedule of the same regulations governs it.

What the rules allow for rent

The first schedule lists the credits an NRE account may receive. One item reads: "Current income in India due to the account holder, subject to payment of applicable taxes in India".

The Reserve Bank's Master Direction on deposits and accounts, updated in September this year, spells out what that means. Paragraph four point seven says that "current income like rent, dividend, pension, interest etc. will be construed as a permissible credit to the NRE account". It adds a proviso. The bank, which the direction calls the authorised dealer, has to be satisfied that the credit is the account holder's current income, and that income tax on it has been deducted or paid, or provided for.

So rent from a Mohali flat is named in the direction itself. It can be credited to an NRE account if two conditions are met. The bank has to be satisfied that the money is the owner's current income. Income tax on it has to have been dealt with.

What the rules allow for an NRO account

The third schedule lets an NRO account receive "legitimate dues in India of the account holder". Rent owed by a tenant fits that description, and an NRO account is the simpler home for it. The bank needs no particular satisfaction to accept a credit of rupees earned in India.

The same schedule lets the owner send current income abroad from an NRO account. Its list of debits includes "remittance outside India of current income in India of the account holder net of applicable taxes". Rent is current income, so rent sitting in an NRO account can also go abroad once tax is settled. The limit the Master Direction sets on remitting NRO balances is a separate matter, and current income has its own line in the schedule.

Why the choice still matters

If rent can go abroad from either account, the difference lies in the paperwork and in how the money is treated once it has landed.

Rent credited to an NRE account becomes part of a balance that is freely repatriable. Interest on an NRE balance is also left out of taxable income in India for an individual who is a person resident outside India under the foreign exchange law, or who has the Reserve Bank's permission to keep the account. The Income Tax Act of nineteen sixty one gave this exemption in section ten, sub-section four, clause two. The Income Tax Department's guidance for non-residents states that the Income Tax Act of two thousand and twenty five keeps it, in its fourth schedule, on the same conditions. Rent in an NRO account stays in an account whose interest is taxable, and each remittance of it abroad goes through the bank's process for current income.

The NRE route carries more checks at the start. The bank has to be satisfied that each credit is rent and that tax has been dealt with. The evidence that fits those conditions is the rent agreement and proof of the tax the tenant deducted. The Master Direction also allows a transfer from an NRO account to an NRE account, but only within the limit the Master Direction sets, so moving money that way counts against that limit. The bank can confirm the limit that applies.

Where the tenant's tax deduction fits

A tenant paying rent to a landlord who lives abroad has to deduct income tax before paying. An earlier piece on this site explains that rule. The deduction is what lets the bank be satisfied that tax has been dealt with, as the Master Direction requires. A tenant who pays the full rent with no deduction leaves the owner without the paper the bank will want for an NRE credit.

That makes the rent agreement and the tax certificates more than tenant paperwork. They are the documents that decide which account the owner can use.

A Mohali tenancy in practice

A typical Mohali case is a flat in one of the city's sectors or in a tower in Zirakpur or Kharar, let to a family through an agent while the owner lives abroad. The tenant transfers rent each month. The owner's choice of account has to be made before the first payment, because the tenant needs to know where to pay.

An owner who names an NRO account has the easier start and can still send the rent abroad as current income. An owner who names an NRE account gets a balance that is freely repatriable, at the cost of satisfying the bank each time. Either way, the rent goes to an account in the owner's own name. The Master Direction provides for a resident account to be designated as an NRO account when its holder becomes a non-resident, and rent paid into an old resident account raises its own problems with the bank.

What the rules leave open

The direction gives the bank the judgement. It does not say what proof is enough, and banks set their own requirements. The rules also say nothing about rent collected in cash by a caretaker or a relative and later deposited, which is harder to show as the owner's current income.

The tax side is also outside the scope of the foreign exchange rules. The deduction rate and the owner's return in India are separate questions, and so is any credit abroad for Indian tax.

The short answer

Rent from a Mohali home owned from abroad can go into an NRO account as dues in India, and can be sent abroad from there as current income once tax is settled. It can also go straight into an NRE account, because the Reserve Bank names rent as current income that an NRE account may receive, provided the bank is satisfied and tax has been dealt with. The second route asks for more paper and gives a freely repatriable balance.

Related reading

- Renting out a Mohali home from abroad: the tax the tenant deducts
- Taking Mohali sale money abroad: how NRI repatriation works now

Sources: The sources we use are listed on our Editorial Sources page.

This piece describes the published text of the Reserve Bank's deposit regulations and Master Direction as they apply to rent from Mohali property owned by people living abroad. Nothing here is legal or tax advice, and each account and tenancy turns on its own papers and facts.