Property, Power of Attorney, and Double Taxation: Solutions to NRI Tax Complications

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As an NRI financial advisor, my most complex queries are tax-related in more than one jurisdiction. The interplay between different tax regimes presents unique issues that must be handled with utmost care. In this blog three common but complex tax scenarios that usually confuse NRIs. These lesser-known subtleties will help you avoid expensive mistakes and optimize your tax position across borders.

Power of Attorney and Rental Income: Who Bears the Tax?

One common question asked by NRI property holders is whether giving power of attorney to parents or siblings in India transfers the tax burden for rental income. The answer is straightforward but important to understand in its entirety. When you grant power of attorney (PoA) to your parents or anyone else, for instance, to collect rent from your property in India, the tax burden remains with you, being the property owner. PoA merely authorizes someone to act on your behalf; it does not transfer ownership and taxation. Your parents have essentially become your agents for collecting the rent. From the perspective of tax compliance, the following are some critical points: First, the tenants are required to deduct Tax at Source (TDS) at 30% (with applicable surcharge and cess) on rent being paid to NRI landlords whether they pay directly to you or to your PoA holder. Second, as an NRI owner, you would declare this rental income in your Indian income tax return under “Income from House Property” in ITR-2 and pay the remaining taxes accordingly.

Interesting fact: The 30% TDS on NRIs is way greater than the 10% for resident Indians, so planning for taxes is all the more important for NRI property owners!

Salary Split Between Indian Subsidiary and Foreign Parent Company

Put yourself in this scenario: You’ve relocated to India in April 2025 after your company shifted you to its Indian subsidiary. Having drawn salary from the Indian concern, you’ve made plans for some portion of it to be remitted by the Abu Dhabi parent company in the form of tax-free income there. Would such an arrangement serve to reduce your tax burden? The answer will depend on whether you are regarded as an Indian tax resident. If you stay for more than 182 days from April 2025 to March 2026 in India, you will qualify as a tax resident. If you have been a non-resident for nine out of the last ten fiscal years or have remained in India for 729 days or less during the seven preceding years, you will be regarded as a “Resident but Not Ordinarily Resident” (RNOR).

Here’s the key point: Although RNORs typically don’t owe Indian tax on foreign-source income, the exemption does not hold for employment income derived from exercise of employment in India. As you are physically working in India, your entire salary package, including the portion received in Abu Dhabi, would be regarded as income earned in India and would be subject to taxation in India. You will need to report the gross salary (Abu Dhabi and Indian) in your Indian return for FY 2025-26. The UAE earnings would also be liable for TDS in India, though the process itself here may be complex.

Fun fact: The RNOR status is a status of transition specifically designated for new residents and returning Indians that allows for a window of two years with certain tax advantages for foreign income and assets!

Dual Taxation for British Citizens Selling Property in India

Another interesting scenario is double taxation of real estate sales. Picture this question from an Indian-born British passport holder who is retired and living in India: “I’ve sold a flat in India and taxed the gain in India. Do I need to pay tax on it in the UK as well?” The response hinges solely on your status as a UK resident for tax purposes, not your passport or nationality. The UK, as with most nations, classifies tax liability through residency rather than nationality. If you are not a resident of the UK (as will probably be the case if you are retired and living in India full-time), you don’t pay UK tax when you sell your Indian property. The UK taxes only overseas income and gains on UK tax residents. But if you continue to be UK tax resident despite residing in India (e.g., by spending sufficient days in the UK in the year), everything shifts. The UK taxes its citizens on worldwide income and profits on assets, including sale of foreign property. In this case, you would report the gain in your UK return. Even here, relief from double taxation can be availed under the Double Taxation Avoidance Agreement (DTAA) between the UK and India. Relief can be taken on already paid Indian tax, so not being taxed on the same income twice.

Fun fact: One of the most complex tax residence tests of the large economies is to be found in the UK in the form of the “Statutory Residence Test,” which considers not just days within the UK, but various “ties” to the UK!

Planning Implications for NRIs

These examples highlight a number of important planning implications for NRIs navigating cross-border taxation:

1. Paperwork matters: Have proper records for all employment agreements, PoA letters, and tax payments to create transparent audit trails for tax authorities.
2. Structuring problems: The way you set up property ownership and employment arrangements has a significant bearing on your tax liabilities between jurisdictions.
3. Residency planning: Residency for tax reasons usually dictates where and how much you tax. Knowledge of the particular residency rules of each country you are interested in is central.
4. DTAA benefits: Double Taxation Avoidance Agreements are a godsend but must be claimed properly through correct procedures in both nations.
5. Seek professional counsel: Cross-border taxation is complex enough that others may miss important nuances. Having experts who know multiple tax systems is invaluable.

Conclusion

As these illustrations indicate, cross-border taxation requires careful consideration of how tax systems interact. What is a straightforward arrangement receiving rent by parents, splitting salary between countries, or selling real estate as a dual citizen, is fraught with tax implications that are not accounted for. If you’re in the same cross-border tax situation, I recommend taking the advice of an international taxation expert. It can cost a lot of money, but it can pay for itself many times over in tax savings and penalty relief. For personalized guidance on your specific situation, email us at office@primewealth.co.in or www.primewealth.co.in to schedule a consultation designed to optimize your cross-border tax situation.

FAQs

1. Does giving someone power of attorney for my Indian property make them responsible for the tax on rental income? Ans- No, the tax liability remains with you as the owner regardless of who collects the rent.
2. As an NRI landlord, is it my responsibility to ensure TDS is deducted on rent payments?
   Ans- Technically it’s the tenant’s responsibility, but practically, you should verify compliance to avoid complications.
3. If my parents use my rental income for their expenses in India, is it still taxable to me?
   Ans- Yes, the income is taxable to you regardless of who ultimately uses the funds.
4. Can I split my employment contract between countries to reduce my overall tax burden?
   Ans- This rarely works for tax avoidance as most countries tax based on where work is physically performed.
5. Does British citizenship automatically make me liable for UK taxes on worldwide income?
   Ans- No, UK tax liability depends on your tax residency status, not citizenship.
6. If I maintain bank accounts in both India and abroad, do I need to report all of them in my tax returns?
   Ans- This depends on your tax residency status in each country and their specific reporting requirements.
7. Can I claim deductions on property maintenance expenses if my parents handle them in India?
   Ans- Yes, legitimate expenses remain deductible regardless of who physically pays them, provided proper documentation exists.
8. How long can I maintain RNOR status in India?
   Ans- Typically up to two financial years, depending on your prior residency history.
9. Do different Indian states have different tax rules for NRI property owners?
   Ans- While income tax is federal, some property-related taxes and processes vary by state.
10. If I’m taxed in two countries despite DTAA provisions, what recourse do I have?
    Ans- You can apply for Mutual Agreement Procedure (MAP) under the relevant DTAA, though this is a complex process best handled with professional assistance.

Disclaimer: The information provided here is for educational and informational purposes only and should not be construed as financial, legal, or tax advice. Consult with a qualified professional before making any investment decisions. We do not accept any liability for errors or omissions in this information nor any direct, indirect, or consequential losses arising from its use.