Indian rental income when you are an Australian tax resident

In India the rent is income from house property. You are taxed on it after a flat 30% standard deduction under Section 24, which covers repairs and upkeep whether or not you spent that much, and after any home-loan interest, with the balance taxed at slab rates. Because you are a non-resident landlord, the tenant must deduct TDS under Section 195 on the gross rent, at the rates in force, not the small resident rate.

That TDS is on the gross, before your 30% deduction and interest, so it almost always takes more than your real Indian tax. You recover the excess by filing an Indian return, which is the normal course, and where you want to avoid the cash being tied up you can apply for a lower-deduction certificate so the tenant withholds closer to the real figure. Under the India-Australia treaty, Article 6 gives India the first right to tax income from Indian property, so India taxing it is expected, not a mistake.

Australia taxes its residents on worldwide income, so the same Indian rent is assessable on your Australian return, gross of the India tax. The important difference is how Australia computes the taxable amount: instead of India's flat 30% allowance, Australia uses the actual-expense method, so you deduct real costs, rates, repairs, agent fees, depreciation and loan interest. As a resident you can even negatively gear a foreign property, so a net rental loss can be set against your other income, which a non-resident cannot do.

For the India tax you paid, Australia gives a foreign income tax offset, a credit that reduces your Australian tax on the rent. You include the full pre-India-tax rent in your income and claim the offset for the India tax. The catch is that the offset is capped: it cannot exceed the Australian tax attributable to that foreign income. So if your actual expenses are less than India's flat 30%, your Australian taxable rent is higher than India's, the Australian tax on it exceeds the India tax, and the offset leaves a residual Australian top-up to pay. The two bases rarely match exactly, which is the whole reason the offset seldom lands on zero.

The practical work is getting the Indian figures clean and in the right shape for your Australian accountant. That means an accurate Indian computation, the 30% deduction and interest, the actual India tax after recovering the over-deducted TDS, and a clear record of the India tax paid and when, converted to Australian dollars at the right rate, so the offset can be claimed correctly.

It also means not losing money on the India side unnecessarily: filing the Indian return to reclaim the gross-basis TDS, and using a lower-deduction certificate where the tie-up of cash matters. A practising CA handles the Indian return and the India-tax-paid certificate your Australian accountant needs for the offset, and flags where the different treatment of expenses will leave an Australian top-up, so there are no surprises when both returns are filed.