Non-Residents Increasingly Investing in Indian Real Estate. This surge is attributed to the temptingly low property prices and the rapid development of infrastructure and economy in India compared to other developing nations. Nonetheless, knowing the tax implications for NRIs when purchasing property can be perplexing. Therefore, in this article, we'll discuss everything you need to know about the tax implications for NRIs to buy properties in India.
Types of Properties NRIs Can Buy in India
NRIs are allowed to purchase certain properties in India, including residential or commercial properties. However, they aren’t allowed to purchase agricultural land, farmhouses, or plantation property; they can own such property only if they get it from a will or as an inheritance. If they seek to purchase agricultural land, farmhouses, or plantation property, they have to get approval from the RBI and the government.
Tax Implications on Purchase of Property by NRI
Tax implications arise for NRIs engaging in property acquisition in India. To catch this concept thoroughly, it's important to determine whether the property seller is a resident or a non-resident as per the provisions of the Income Tax Act of India. An NRI purchasing immovable property in India is required to deduct TDS (Tax Deducted at Source), which is contingent upon the residential status of the seller and the type of capital gains realized.
If an NRI procures an immovable property from a resident, TDS must be deducted at a rate of 1% if the sale consideration exceeds ₹50 lakh.
On the other hand, when acquiring property from a non-resident and if long-term capital gains (LTCG) are applicable, the TDS deduction rate should be 20%. In the case of short-term capital gains, TDS should be deducted at 30%. Short-term capital gains apply when a property is sold within two years of its purchase. Any sale occurring two years or more after acquisition qualifies as a long-term capital gain.
Also, the deducted tax must be remitted within 30 days of deduction. Failure to deduct or delayed deduction of tax will incur a fine of 1% per month on the outstanding TDS amount.
What are the tax benefits for NRIs purchasing property in India?
NRIs (Non-Resident Indians) have tax obligations on rental income and capital gains in India. However, the Indian Income Tax Act offers several attractive tax benefits and investment opportunities to make investing in India more appealing. Let's explore these tax-saving opportunities:
Tax-Exempt Interest Income: Earn interest income without tax implications on government bonds and savings certificates.
Invest and Save on Taxes: Invest up to ₹1.5 lakh in Equity Linked Savings Schemes (ELSS) from mutual funds and enjoy tax deductions under Section 80C.
Real Estate Benefits: For home loans taken on properties in India, claim a standard deduction of 30% along with deductions for property taxes and interest payments.
Capital Gains Relief: Re-invest capital gains from selling your first property in specific bonds to avoid taxes.
Deductions for Various Expenses:
Claim deductions for insurance premiums paid towards NRI or family's life insurance policies, with a premium limit of 10% of the sum assured.
Get tax relief on interest paid for tuition fees and educational loans for full-time courses in Indian institutions.
Reduce your tax burden with deductions for charitable donations.
Deduct principal repayments and stamp duty/registration charges incurred during property purchase under Section 80C.
Simplified Tax Filing: If your only income in India comes from investments where TDS (Tax Deducted at Source) has already been deducted, filing an income tax return might not be mandatory.
Long-Term Capital Gains Exemptions: Claim exemptions under Sections 54, 54F, and 54EC on long-term capital gains (except short-term gains) from specific investments.
Health Insurance Premium Deductions: Reduce your tax liability by claiming deductions for health insurance premiums paid up to ₹50,000 for senior citizens and ₹25,000 for yourself, spouse, and dependent children.
By taking advantage of these tax benefits and investment opportunities, NRIs can make informed financial decisions and potentially grow their wealth in India.
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