It is known fact that NRIs continuously look out for opportunities to invest in India, particularly in their home town/state. Owning a property is considered as the top priority by most of them. Property ownership Property Selling/Buying in India does require a basic understanding of the tax matters - tax liabilities, benefits etc. The idea of presenting this section is to make understanding of the NRI property tax matters as simple as possible.
We request the NRI community to make use of 'ASK OUR EXPERT' Section of the propertyDirect.in, where they can get the answers from our panel of experts on tax, legal and mortgage/home loans matters in India.
Heads Of Income :
The status of being NRI does not exempt you from income tax liability in India.
NRIs have to pay tax on income in India if it is more than stipulated Rs. 150,000/-
Income earned in India can fall under various heads such as Income from salary/pension,
Income from business in India, Income from Property, Income from other sources
such as bank interest, capital gains etc.Income under each of these heads is added to
arrive at the Gross Total Income. Some deductions are permissible from gross total income.
These deductions are in respect of certain payments as well as incomes.
Some examples of these deductions are
a).Deductions for payments include deductions for Payments for LIC premia, medical insurance
premia,donations to certain funds, etc. and
b).Deductions from income include profit and gains from housing projects/property in India,
profit derived from export business, profit from export of computer software in some cases.
Based on the taxable income arrived at after considering the deductions, tax is calculated.
Upto current financial year, a rebate was allowed from the tax so computed and net tax payable
arrived at.This rebate is a percentage of investments made in certain specified savings such
as LIC,National savings scheme, contribution to PF investments in specified infrastructure Bonds,
Repayment of loan borrowed for purchase or construction of house, etc.From financial year 2005-06,
this system of allowing rebate has been discontinued and investments in LIC etc will be allowed
as deduction under new section 80C. maximum Rs. 100,000/- from the gross total income and no rebate
of tax is allowed from such investments.Advance tax on estimated income during the year has to be
computed and paid in three installments before the close of the financial year itself.
Delay in payment of advance-tax/furnishing the return of income can attract charge of interest.
Tax on Property Income :
The income tax implications on house property income in India would be dependent on whether the property is kept vacant or let out. In case an NRI has only one property in India and if it is kept vacant, then it would be possible to say that there should not be any rental value for such property as the NRI was not able to occupy the same owing to his/her employment, business or professional or any other assignment carried out at any other place.
However, if he/she owns two properties and both of them are kept vacant, then he/she is required to pay income tax on one of the properties as if the property had been let out. The tax laws do not provide clear guidance on how the rental value is to be determined for such property. It simply states that the annual rent should be the sum which the property might reasonably be expected to let from year to year. Though there are judicial precedents that are available which suggest adoption of municipal value/ fair rent, there could be some practical difficulties in ascertaining such value in the ever increasing rental market.
In case of let out properties, the actual rental income (after reducing the municipal taxes) would be subject to tax. The tax law allows a general deduction of 30% on the rental income and also allows for deduction towards interest subject to certain conditions.
Tax Calculation & Payments :
Under Indian tax law, the payer is required to withhold tax on rental income paid to a non-resident @ 30.6% where the income of the non-resident does not exceed Rs 10,00,000, otherwise at 33.66%.
In case an NRI wishes to have a lower rate, then he has to apply to the tax authorities in a specified format for obtaining a certificate for deduction of tax at lower rate. The NRI would be required to file a return of income at the end of the year if the taxable income exceeds Rs 100,000. In case the NRI is taxed in the home country on the rental income derived from India, then he could consider claiming exemption or tax credit in the home country based on the double tax treaty agreement entered into India with such country, if any.
Joint Ownership :
It is common practice to have joint ownership of properties by a husband and wife. However in case an individual intends to split the income between himself and his wife for tax purposes, then it is important to establish that both of them contributed for the investment in property and the share of ownership is clearly outlined.
In case the entire investment is made by one person, then in all likelihood, the entire income would be taxable in that individual's hands on account of the clubbing provisions that exist in India though the property may be jointly held.
Capital Gains Tax :
Capital gains are the difference between the acquisition cost and sale consideration of an asset, be it property or shares and securities.The tax you pay on this profit is called the capital gains tax.
Depending on how long you held the asset, the capital gain is classified either as short-term or long-term. The cost inflation index has to be considered to arrive at tax on long term capital gains.
For capital gains, tax has to be computed separately and added to other taxes, if any, payable. Tax is not payable on long term capital gains in respect of listed shares and securities.
Charge of Wealth Tax :
Tax liabilities are not restricted only to income tax and NRIs have to take into account the wealth tax implications as well.
Wealth-tax is payable in India only when net taxable wealth exceeds Rs. 15 lakhs. Specified assets include house property. However, the Wealth Tax Act provides an exemption in respect of one house property. In case of more than one property, the NRI would have to pay wealth tax @ 1% on the value (value determined based on the prescribed valuation rules) in excess of Rs 15 lakhs and file the required return.
There is a specific exemption available for returning Indians in respect of investment made in house property out of money brought from outside India or from balances held in NRE accounts as on date of return to India. The value of such house properties would be exempt from wealth tax for a period of seven consecutive years starting from the year when he/ she returned to India. This exemption is available only if the NRI has come to India with the intention of 'permanently residing in India.'
If any debts, loans or advances have been received or taken for acquiring non-productive assets, the same would be allowed as deduction. Assets and debts, outside India of an individual or a HUF or a company not resident in India, are excluded.
As may be discerned from the above, the liberalized exchange control regulations provide unrestricted access to NRIs to invest in house property in India, thereby helping them to capture the great potential available on such investment.
There are, however, some restrictions imposed on the repatriation of sale proceeds. NRIs also need to understand the tax implications in India on their proposed investment both from an income tax and wealth tax perspective, to ensure full compliance with the statutory requirements
Advance Rulings :
Non-resident assets can obtain in advance a binding ruling on issues, which could arise in determination of their tax liabilities. Such issues can relate to a property or any transaction, which has been undertaken or is proposed to be undertaken by a non-resident Indian.
Calculation of Tax :
Mr. NRI ESTIMATES his income under the following heads
1. Pension in India Rs. 1,50,000/-
2. Rental income in India Rs. 1,20,000/- Municipal taxes paid Rs 7,500/-
Interest on Loan rs 25,000/-
3. Interest on taxable bank deposits Rs. 15,000/-
4. Long term Capital Gains on sale of immovable property Rs. 25,,000/-
He has also invested In LIC and NSCs, Rs. 30000/- and Rs. 40,000/-
respectively, during the year. Repayment of Housing loan, Rs. 35,000/-
Foreign income $ 20,000/- This is exempt]
His tax liability in India would be computed as follows for
financial year 2008-09 Assessment year 2009-10]
1. Income from Salaries Pension], Rs 1,50,000
2. Income from House property, Rs 53,750
Rs (120000-7500)* less 30% less interest on loan Rs. 25,000
3. Interest on taxable bank deposits Rs 15,000
4. Long term Capital gain Rs. 25,000
5. Taxable income Rs 2,43,750
6. Deduction u/s 80C
LIC and NSCs, Rs. 30000/- and Rs.40, 000/-
Repayment of Housing loan, Rs. 35000/-
Limited to Rs. 100,000 Rs.1, 00,000
7. Taxable income Rs.1,43,750
It's FEMA that matters :
Living outside India, you first need to be aware of the Foreign Exchange Management Act (FEMA) and its applicability to forex transactions in India.
The acquisition and transfer of immovable property too has financial implications and falls within the ambit of FEMA. Hence, the place to get first
hand information on this is the RBI notification under FEMA.
These guidelines permit both Non-Resident Indians (NRIs) and Foreign Nationals of India Origin (PIOs) to enter into property transactions.
That takes us to the next question: Who is an NRI or a PIO ? Had you been a student of income-tax law, you might recall the '182 days in India'
rule for determination of residential status and may even furiously start your calculations. But, wait you are governed by FEMA here, as well as
the Income-Tax Act; and they don't see eye to eye in this case!
Under FEMA, a person becomes a non-resident simply by leaving India for employment or for any other purpose that would indicate his intention to
stay abroad for an indefinite period. It defines a PIO as an individual who, at any time, has held an Indian passport or who, or either his father
or grandfather, was a citizen of India by virtue of the Constitution or Citizenship Act, 1955.Once you have passed this first test and determined your eligibility,you can move on to taking a look at the law.
Property acquisition :
As an NRI or a PIO, you are free to acquire any number of properties (residential/commercial) in India, under the general permission granted by the RBI. No documents to be filed; no forms to be filled. Believe it or not, it is as simple as that.
Like a purchase, a gift from anyone, be it a resident Indian, another NRI or a PIO, is perfectly acceptable. After all, would anyone (law-makers included) want to say 'no' to such a fortune?
But the law treats inheritance with more caution. As history proves, that's where most disputes arise, isn't it? Let's take the case of Anshul, who migrated to the US in the 1990s and has since been an NRI. His parents, on the other hand, have not moved out of Hyderabad all their lives. His parents being resident Indians, Anshul can freely inherit the ancestral house in Hyderabad.
What if Anshul's father migrated to the US in the 1960s? By law, his father may be an NRI (if he still holds his Indian passport) or a PIO (if he is now a US citizen but at one time held an Indian passport). If they have still retained their ancestral house, Anshul cannot freely inherit the house from his father, as in the first case.
Inheritance of a property in India from a person resident outside India needs specific approval from the RBI and will be permitted only if the bequeather had acquired such property in accordance with the provisions of foreign exchange law at the time of acquisition, or under FEMA regulations.
Transfer of property :
An NRI or a PIO is free to transfer his property by way of sale or by way of gift. But the catch lies here. In case of a gift, the property can be gifted to any person, whether he is a resident, non-resident or a PIO. But, in case of a sale, a PIO alone needs prior approval of the RBI to sell it to another NRI or PIO.
If he sells it to a resident Indian, the need for prior approval does not arise. An NRI need not get prior approval even if he is selling the property to another NRI or a PIO.
Agricultural Land :
While you can freely acquire residential or commercial property, you need to remember that, as a rule, agricultural land, plantation property and farmhouse in India can neither be purchased nor be obtained by way of gift by an NRI or a PIO.
It can only be inherited. On the other hand, you can freely sell or gift these properties, but only to someone who is a citizen of India and who stays in India.
Payment, Repatriation & Remittance :
An NRI / PIO may purchase property in India by remitting funds into India from his bank account abroad or from funds held in his NRE / FCNR (B) / NRO account held with a local bank. Suppose you don't have enough money, nothing prevents you from taking a home loan readily offered by various banks in India.
Similarly in case of a sale, the amount may first be credited into any of your accounts in India and the proceeds may later be repatriated abroad.
Repatriation may be by way of inward remittance or by debit to NRE/FCNR (B) account. But there is a cap on how much you can send back. If you had purchased the property for, say, $1,25,000 (Rs 50 lakh, approximately) through a dollar remittance or through your FCNR(B)/ NRE account, you can repatriate only so much, although you might have sold the property for Rs 75 lakh.
You could have also credited the sales proceeds to your NRO account. If so, the amount to be taken overseas cannot exceed $1 million per calendar year. (Normally, the balance in NRO account is not repatriable. Repatriation of sales proceeds of immovable property is allowed on an ad hoc basis). The remittance from the NRO account was previously subject to a lock in period of 10 years. The RBI has now removed this restriction.
The proceeds of property received by way of gift can be credited only to the NRO account. Hence, repatriation of the same will come under the $1-million limit.
Subject to the production of documentary evidence in support of inheritance and tax clearance certificate/no objection certificate from the Income-Tax authority, sales proceeds (up to a maximum of $1 million per calendar year) of property acquired by way of inheritance can be taken overseas. In case this property has been inherited from an NRI or a PIO, along with documentary evidence and no objection certificate, prior approval of the RBI may be necessary.
Taxman watching :
As the cliché goes, wherever we go, two things are certain in life - death and taxes. As per the income-tax law, when you become a non-resident, income received, accruing or arising or deemed to be received or accruing or arising in India will be taxed in your hands. Let us assume you have invested in an apartment in India.
If you have let out the flat, the rent you receive is an income arising in India from a property situated in India. Hence, it is chargeable to tax under the head 'Income from House Property'. In case you've taken a home loan, any interest on that loan is available as a deduction from your income.
If you sell your Indian property too, the taxman will come knocking at your door. This time, to claim a part of the tidy sum you made, under the head 'capital gains'. Tax planning on this front as specified in Sections 54 or 54EC or 54F of the Income-Tax Act will help you shield a substantial portion of that sum from taxes.
Entry in India for business :
Foreign companies or business entities are required to obtain prior permission from Reserve Bank of India to establish a branch office or other place of Business for their activities of trading, commercial or industrial nature in India.
Borrowings and lending in India Reserve Bank of India has granted certain general permissions relating to borrowing & lending between persons resident in India and Non Residents, subject to complying with all terms and conditions set forth in such general permission. The Borrowing or Lending transactions permitted through general permissions can take place without prior specific permission from RBI.
Directorship in a company Any Non-Resident including a foreign national is permitted to become a director in a company in India. No prior permission is required.
FDI in integrated townships :
The Government is encouraging FDI in development of integrated townships. The investment is repatriable and the income is exempt if certain conditions are complied with. The minimum capitalisation norm shall be US$ 10million for a wholly owned subsidiary, and US$ 5 million for a joint venture.
NRI Home Loans :
We provide you Single Window Services from various Banks for best Interest rates on Home Loans and Mortgage loans.To submit a Request for percentage of Interest and Terms and Conditions of the Bank by Clicking here or drop an E-mail at
info@propertydirect.in
Documents Required For Home Loans :
Important Note : These documents are required for Indian Citizens Only.
Common Documents:
Application duly filled with photographs and signature (in black).
BVR (required for each individual Bank Statement)
ID Proof - (PAN Card, DL, Passport. etc)
Address Proof -(Telephone bill, Electricity Bill, Gas Bill, Passport, DL, Employer certificate.)
Self Employed:
ITR'S-3yrs (with P&L A/c, Balance Sheet, Computation- CA Attested).
Business proof-5yrs.
Bank statement-Latest 6 months.
Salaried:
Pay slips-Latest 3 months.
2 yrs Form -16/ PF statement.
Bank statement-Latest 6 months.
Construction Progress Reporting :
If you bought a property, which is in work-in progress state and can not make regular visits in person to oversee the progress, therefore need someone reliable and professional to give you a progress update on weekly basis. We offer to provide you a service of regular visits to your site by our personnel and give you an unbiased quality check and progress report on weekly basis. This does not cost you much, you can engage our service for full life cycle of the project.
Physical Inspection and Reporting :
For those who own a property in the form of open plot or a farmhouse or commercial land and want an update about happenings around that, we would provide a service to make regular visits to your property and given an update about the latest developments in and around that locality. This will help you keep peace of mind while you are away from city or country and can not make a visit on your own, however scared about any encroachment or any other development that might impact your ownership rights.
Technical Review :
We have a team of subject matter experts and consultants to provide you an independent, review of architecture and structural analysis for apartment or independent house. Our review covers all the quality aspects of the construction so that you can be sure of what was promised by a builder or developer is actually delivered.
Research and Advisory :
This service is intended for those potential buyers/sellers or Lessors who need detailed reports on a particular project or an area, town, city or any locality. Our focus would be on all key parameters like price, potential for appreciation, ownership and title risks, key developments etc. Based on your priorities, we provide you an unbiased independent report about that project/area.
You can simply submit your request here, our team will get back to you within 24 hours if requested report is already available with us, otherwise they shall let you know the timeframe for such report availability.
For the reports already available with us we normally do not charge customers unless they ask for any specific details not covered in our research.
Property Management Services :
Tenant Service for Owners: We provide tenant services by collecting cheque on behalf of you and deposit into your bank account and email you the details every month
Regulatory Service for Owners: We keep track of regulatory requirements of you property and get clearance and renewal of certificates from government agencies like municipal authority, fire department etc.
Payment Service: We can make utility payments like electricity, water bills, property tax on behalf of you and keep you updated on changes in tariff on time so that you can avoid costly penalties. You can give us standing instructions as well.
House Keeping and Maintenance: We arrange professional service for your property house keeping or any other maintenance like lawn/garden maintenance, carpentry, plumbing, security etc.
Legal Services :
If you are buying or leasing a property we can help you scrutinize the A-Z documents from legal and title point of view, be it link documents, sale deeds, revenue record document, registration documents, EC, Lease agreement etc. All this is at a very reasonable price. All you need to do is, to submit a request with relevant subject by clicking here or drop an email at
info@propertydirect.in we shall get in touch with you within 24 hours time.
Interior and Exterior Designing :
We Provide Professional Interior and Exterior Designers Services, all this is at a reasonable Price.All you need to do is to submit a request with relevant subject by clicking here or drop an E-mail at
info@propertydirect.in we shall get in touch with you within 24 hours time.
