Tax Implication for Non Resident Individuals acquiring property in India

If you are an NRI and interested in acquiring property in India then before acquisition you must be aware of every tax aspect relating to purchasing property in India. In this write up, we are explaining Tax Implication for Non Resident Individuals acquiring property in India.

Residential/commercial property in India

NRI can easily acquire residential/commercial property in India without any permission from Reserve Bank of India and there is no limit on number of such property which can be acquired by the NRI in India.

Agricultural land, farm house other in India

NRI cannot buy agricultural land, plantation land or a farm house in India and he needs to take specific approval of Reserve Bank to acquire the same which are considered in consultation with Reserve Bank of India.

Moreover, it is important here to note that NRI cannot even acquire these property as gift.

Source of purchase Consideration

Purchase Consideration can be made either:

  • Out of remittances in foreign exchange to India through regular banking channels, or
  • Out of funds from NRE, NRO or FCNR accounts maintained with banks in India.

 Taxes applicable on House Properties in India

Income tax is attracted merely on purchase of property in India. Taxes are application in the following cases:

  • Rental Income from the Property

If NRI have rented the property and having rental income then it will be taxable in India and NRI has to file income tax return in India in case his total income in India including rental income exceeds the basic exemption limit.

Further, there may be cases where the rent may be additionally taxed in the NRI’s country of tax residence also. Here, NRI have to consider tax relief available under the Double Tax Avoidance Agreement (DTAA).

  • Income when property is deemed to be let out

If a person (resident or NRI) owns more than one house property, then only one of them will be deemed as self-occupied and other one will be deemed to be let out, whether you rent it out or not.

In case other property is not given on rent then deemed rental income has to be calculated on the second property and tax has to be paid thereof.

Moreover, ownership of property has to be seen globally means if you are an NRI and own and live in a house in abroad and also own a house property in India. Here, NRI would have to pay income tax on deemed rent in India even if you do not give the property in India on rent.

  • Capital gain on Sale of property or part thereof

Long-term and short-term capital gains on sale of the property are taxable in the hands of NRI.

Deductions against the property

Similar to residents, Municipal taxes paid during the year and interests paid on housing loan are deductible. Standard deduction of 30 per cent of the net rent is also allowed.

Stamp duty, registration charges of property and principal repayment of Housing loan are allowed as deduction under Section 80C.

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