Property Tax matters for Non-Resident Indians
The Property market across numerous cities in India has become an attractive and common investment opportunity for Indians who are settled abroad.The purchasing power of stronger global currencies against the Indian Rupee and the desire to have a property to call one’s own back at home, has created an environment conducive for property purchase decisions by Non-resident Indians.
Non-resident Indians are allowed to purchase, sell and rent both residential and commercial property in India through regular banking channels and through NRE, NRO or FCNR accounts. They cannot although, buy agricultural land, farm houses or plantation land without special permissions granted by the RBI.
Through this article we will enumerate the tax implications for Non-resident Indian’s during buying property and selling owned or inherited property within India.
Tax implications while buying a property in India
Non-resident Indians holding an Indian passport can purchase residential or commercial property in India with no prior permission of the RBI and no limit on the cost of the property. They can also take interest-free loans from relatives and family members who are residents of India. The Indian lender is subject to a FEMA (Foreign Exchange Management Act) remittance limit of up to $200,000 in any given financial year. NRI’s are also subject to TDS deduction at the rate of 1 per cent, for property purchases over INR 50 lakh.
In the case of commercial property purchase for carrying out industrial, commercial or trading activities by their organisation in India, they are required to complete Declaration on form IPI 7 with the RBI within 90 days from the date of property purchase.
Tax deductions on property purchases are the same from NRI’s and resident Indians.Principal amount repayment of a housing loan, stamp duty and registration amount are allowed Tax rebate under Section 80C up to a limit of INR 1 lakh in a financial year.
Tax implications while selling a property in India
If an NRI sells a property within three years of purchase, he/she will be liable to pay short-term capital gains (STCG) tax at the respective tax slab. The difference between the sale proceeds and the cost of purchase is taxable under STCG.
If a property is sold after three years from the date of purchase, he/she is liable to pay long-term capital gains (LTCG) tax of 20 per cent plus surcharge at 2 per cent. The gains are computed as the difference between sale value and current indexed cost (adjusted according to inflation). Similar are the tax implications in the case of an inherited property. The cost to the previous owner from whom the property is inherited is considered as the cost of purchase while computing the LTCG amount.
In order to avoid Capital Gains Tax up to the full extent, an NRI can plan one of the following –
-Re-invest the sale proceeds in another property within two years from the date of sale to claim exemption under section 54F.
-Invest in tax-exempted bonds issued by the Rural Electrification Corporation and the National Highways Authority of India within six months from sale to claim tax exemption under Section 54EC of the Income Tax Act. Such investments must be INR 50lakh or less.
Repatriation of sales proceeds
In case of repatriation of sale proceeds for a property held for more than ten years to another country outside of India, an NRI/Person of Indian origin (PIO’s) can transfer the funds to an NRO/NRE account and are then permitted to repatriate the funds up to $100,000 a financial year without prior approval of RBI, under the present Foreign Exchange Management Act (FEMA) guidelines.
Repatriation should ideally be done under a valid PAN card of the seller/NRI and post the payment of Capital Gains tax, TDS and Surcharge to avoid scrutiny.
Vikram Ramchand, Founder at makemyreturns.com
Vikram is a serial entrepreneur – having successfully founded two consumer internet companies. His latest venture is makemyreturns.com, an online tax filing and planning service. He holds a Bachelors in Computer Science from the Georgia Institute of Technology and an MBA from the London Business School.
The views expressed in this article are the author´s own.
