NRI Investment In Housing: Taxes Levied And Collected
- 27 November 2019
When it comes to investing in Indian real estate, NRIs tend to pool in a large sum of money for both residential and commercial properties. However, there is still a fair amount of confusion regarding property tax on NRI investment in India. Many NRIs are unaware of the tax treatment given to properties owned by non-resident Indians. The tax implications either through house property tax and other sources is something that needs more awareness. Mahindra Lifespaces, as real estate developers in India, make sure that when it comes to NRI investment in housing, there is no confusion regarding the taxes levied and collected.
Property income in India can be made through mainly two sources: renting out the property or selling off the property. Let’s take a look at the taxes levied and collected on these two main sources of property income
1. Rental Income
Income tax on rental income is levied on NRIs in the same manner that it is for resident Indians. The additional rental income received is taxable under the house property tax.
- From the total rent received by an NRI, municipal tax is the first cut that is allowed on the amount.
- Next, on the balance amount, 30% standard deduction is allowed and an additional deduction for the interest paid on the home loan is allowed as well.
- In such a case where the NRI owns more than one property, which is neither rented out or used for residential purpose, one of those properties can be claimed as self-occupied but a notional rent is calculated, and a tax is applicable on the remaining properties.
2. Capital Gains
The capital gains on a property for an NRI are calculated on the basis of short term or long term holding of the asset or property. When it comes to capital gains, the cost of the property is the cost to the previous owner.
- When the asset or property is sold off within 2 years of purchase (according to the latest budget), it is classified as short-term capital gains and it is chargeable to tax as per the income tax slabs applicable to NRIs.
- When the asset (apart from immovable property and shares) is sold off after completion of 3 years, it is classified as long-term capital gains and is taxed at 20% plus cess and an additional surcharge after indexation. In the case of immovable property, it is treated as a long-term capital gain if it is held for a period of more than 2 years.
Other than the taxes levied and collected, NRIs also enjoy tax exemptions on the capital gain through the sale of properties. The tax exemptions available to a non-resident Indian are categorized under three different sections: Section 54, Section 54EC and Section 80C. To claim the deductions, the NRI must produce all relevant documents. It is necessary for the NRI to make an informed decision when it comes to real estate investment in India as well as the taxes levied and deductions available. If you are aware of these aspects and wish to invest in a property in India, you can check out the variety of projects by Mahindra Lifespaces across India.
1. Livemint – Tax Implications Of NRI Investments In Residential Properties In India
2. Global Property Guide – Taxes And Costs
3. Economic times – How To Calculate income from house property for income tax purposes
4. Images – Freepik.com/free-photo/purple-alarm-clock-stack-increasing-coins-wooden-desk-against-blue-background_3951330.htm