Falling rupee and fall in property prices in the cities leads to huge interest from the NRIs across the world. There is lot of interest for the property investment in India. As we are aware, Non-resident Indians are allowed to purchase residential and commercial property in India. But, they can not purchase agricultural land, plantation property or farm house. The taxing rules for the NRI property owners are very similar to the normal residents with few change in the law. This article explores some important aspects of the taxing issues which is very commonly encountered by most of the non-Indian residents. If you have any questions regarding the personal finance topics, please write it on the comments section or post it on the facebook fans page.
1. Is rental income taxed in India?
If you are NRI and rented out the property in India, there is no restriction for you to rent out your property and earn the rental income. You can receive the rental income in your NRE or NRO accounts and can be freely repatriated. If you don’t have these accounts, you can directly remit the rental income to abroad, but you have to get a certificate from Charted Accountant that the due taxes are paid.
Another important point about the rental income is that, it is taxable in India. Because, rental income is earned in India, property owner has to pay the tax in India. Here note that, tax is deducted by the tenant who are paying the rent for the property. He has to deduct 30% of the tax amount from the rent paid and submit to the government. For that purpose, he has to obtain a TAN for deducting the TDS. However, if tenant is not paying the tax, property owner has to file the income tax returns and pay the tax.
The rental income may be taxed on your country of residence. It is common practice for all the countries to levy the taxes on global income. When you receive rental income, it is taxed in India since it is earned in India. When you repatriate that amount to that country, you may have to pay the tax again. You have to check the Double Taxation Avoidance Agreements that India has entered into with various countries. In that case, you can avoid tax on your country of residence.
2. Deductions Against the Property
Deductions are allowed same as for residents. Municipal taxes paid during the year and interest payment on housing loan is allowed under deductions. There is a standard deduction of 30 percent of the net rent can be availed for maintenance and repair work without considering the actual expenditure. Apart from these deductions, one can claim the housing loan principal repayment, stamp duty and registration charges under the Section 80C.
3. How to Handle Vacant Property?
Here the treatment of tax is similar as for residents. Please consider the following points:
- If you have only one property and it is vacant, it will be considered as self-occupied and there will not be any income for that house. You will be eligible for the Rs. 1.5 lacs interest payment for that property.
- If you have more than one property, one has to be shown as the self occupied and other properties has to be considered as rented out. Even if the property is vacant, there should be notional income added to your income for that property.
4. Wealth Tax for NRI
NRI is liable to pay wealth tax for the properties in India on certain situations. If you see the wealth tax in India, most of the resident is not paying the wealth tax, the reason is that there is some exemption for the wealth tax liability. For example, even if you have one which cost Rs. 50 crore, it is exempt from the wealth tax.
- One residential house is exempt from the wealth tax.
- If the property is rented out for more than 300 days in a year is exempt from the wealth tax.
- Theses properties are anything like residential houses, commercial buildings, guest house, or a farmhouse within 25km of municipal limits.
- Apart from the properties, NRI is liable to pay wealth tax for motor cars; bullion, gold and silver jewellery or any articles; aircraft, yachts, boats; urban land and cash in hand exceeding Rs.50,000.
- Assets like stocks, loans, fixed deposits, etc. are not under the wealth tax net.
- When you are calculating wealth, it is allowed to deduct the outstanding debt for that property.
- NRI has to pay the wealth tax of 1% exceeding the Rs. 30 lacs.
- As wealth tax is exempt only for one house property, in case you own more than one house, you have the option to choose which house you want to be exempt.
- The new ‘Direct Tax Code (DTC)’ is now expected in future, proposes to increase the non-taxable limit of of net wealth to Rs. 1 crore from the existing limit of Rs. 30 lacs.
5. Capital Gains
When you sell a capital asset it attracts capital gains tax. If the property you are selling is more than 3 years old, then it is long term capital gains and seller has to pay the tax while filing the income tax returns. The rules applied to NRI is very similar to that of normal residents. Please read the following articles to know about the capital gains and exemptions.
- How to plan income tax for Capital Gains?
- What is capital gains account scheme?
- What is Capital Gains Account Scheme?
I hope this article gives basic idea on the NRI tax related issues for the property owners. This is only a basic which gives you insights on the matters, please do your own research on this topics before making any decision. If you want to have discussion on this topic, please write your comments below or in our facebook page. I also offers free discussion through skype for any of our readers who wants consulting. If you are interested in free consulting on the topics personal finance, tax planning, etc., please send me a mail.