Income Tax: Tips for NRIs buying property in India
/ Taxation

Income Tax: Tips for NRIs buying property in India

With a little due diligence, it is probable for NRI’s to successfully invest in property in India for themselves and their family members. What all you required to do is invest a little time to understand the ins and outs of the governing nuances.

NRI’s could transmit any immovable property to a person resident in India. They could transfer immovable property rather than agricultural land, plantation property, or farmhouse to an Indian citizen or PIO resident outside India.

Non-Resident Indians (NRI’s) obtaining a piece of property in India may found it rigid to comply with all the rules due to their non-familiarity with Indian laws. Taxation is one of another multifaceted issue for them.

The Foreign Exchange Management Act (FEMA) permits an Indian citizen residing outside the country to invest in Indian real estate. However, it has few exemptions. In case, the property should not be an agricultural land, a farmhouse or plantation property. If exempted properties are gifted or inherited, then NRI’s will require government and RBI sanctions to be the legal owners of such properties.

NRI’s can handover any immovable property to a person resident in India. However, they can’t transfer agricultural land, plantation property, or farmhouse to an Indian citizen or PIO resident outside India.

RBI Rules
Below listed are some rules which are mandatory by the Reserve Bank of India for NRI’s handling immovable property.

  • NRI’s can make payments for the attainment of immovable property.
  • Funds can be received in India via normal banking channels by way of inward transfer from any place outside India or by debit to his NRE/FCNR(B)/NRO account.
  • Such payments cannot be completed by traveller’s cheque, foreign currency notes, or other modes, except those which are specifically mentioned as per the RBI.
  • An NRI who has bought residential/commercial property under general permission is not required to file any documents with the Reserve Bank.

Tax Implications
There are some tax suggestions to acquire a property. To understand better, it is important to identify whether the seller is a resident or a non-resident as per the Income Tax Act. An NRI who procures an immovable property in India must be deducted TDS which will be calculated based on the residential status of the person vending the property and the nature of capital gains.

If an NRI purchases immovable property in India from a resident, he must deduct TDS at 1% and if, the sale contemplation exceeds Rs 50 lakh. If the NRI procures a property from a non-resident, and if long-term capital gains are applicable, then TDS should be deducted at 20%. In case short-term capital gains are applicable, then TDS at 30% is to be required to deduct. Short-term capital gains are applicable when a property is sold within two years or less of buying it. If the property is sold two years after it’s attainment, there is a long-term capital gain.

Also, remember that the deducted tax is to be deposited within 30 days. Non-deduction or late deduction of tax will appeal late deduction of TDS penalty at the rate of 1% per month. It is valid from the date on which tax was deductible to the date of actual deduction. The Income Tax Act also delivers certain tax exemptions to NRI’s under Section 54, if they don’t buy or sell properties for short and long-term gains. Tax exemptions will be applicable based on how the property is used, like it is self-occupied or sold out. The exemption will enforce to the total capital gain on the sale, not the total sale amount.

With a little due diligence, it is conceivable for NRI’s to profitably invest in property in India for themselves and their family members. All they need to do is spend a little time to comprehend the ins and outs of the regulatory nuances and will be set.

Rules for NRI’s

  • NRI’s can’t buy agricultural land, a farmhouse or plantation property in India.
  • If the NRI purchase property from a non-resident, and LTCG is applicable, then 20% TDS is to be deducted.
  • On purchasing from a resident, an NRI must deduct 1% TDS, if the sale price exceeds Rs 50 lakh.
  • NRI’s can yield home loans up to 80% of the overall value of the property.