Property Purchase in India – Tax Implications for NRIs
NRIs are allowed to purchase residential and commercial properties in India except farm lands, plantation or agricultural spaces. For a property purchase of over 50 lakh, 1 per cent of tax is deducted at source (TDS).
Here in this article you will learn about various other tax implications for NRIs while they are purchasing, renting or selling property in India.
Q1. Is the rent received from property taxable?
A. Yes, the rent received from property in India is taxable for NRIs. They are required to file tax on the rent income (if it surpasses threshold limit). The income from rent may also be taxed in the country of residence of the NRI as per the taxation laws practiced in the country. There are some nations which provide tax relief to their residents (from India) under Double Tax Avoidance Agreement (DTAA).
Q2. Are municipal taxes and housing loan payments tax deductible?
A. Just similar to Indian residents, the municipal taxes which are paid yearly and housing loan interest payments are tax deductible. NRIs are eligible to avail standard reduction of 30 per cent on net rent.
(Net rent amount = gross rent – municipal taxes for repair + maintenance)
Housing loan principal repayment amount, stamp duty and registration charges are allowed to be deducted from the gross income under Section 80C of the Income Tax Act with a yearly exemption limit of Rs 1 lakh.
Q3. What are the rules regarding wealth tax?
A.As per taxation laws in the country, any property that has been rented for more than 300 days is exempted from the wealth tax in case of an NRI. A housing property that can be categorized as self-occupied property is exempt from being taxed if it remains vacant. But, if you have raised a housing loan over the vacant property in range of Rs 1.5 lakh per annum, then the interest is bound to be deducted.
Nevertheless the subsequent properties, other than the first one are subjected to wealth tax at 1 per cent rate, if value exceeds 30 lakh.
For a property owned over 36 months in the country, an NRI can claim an exemption from tax by making an investment in another housing property or some bonds.
India enjoys Double Tax Avoidance Agreement (DTAA) with many countries and Indians residing don’t need to pay taxes there, if already taxed once in India, under the agreement conditions – if in case the country of residence is taxing their income originating from assets in the country of their birth.