27/03/2015
Taxation rules for NRI property Buyers:
With the value of rupee dropping in the global market, investment in the Indian real estate market seems lucrative to NRIs. As per Magicbricks research, NRI property buyers investing in Indian shores are primarily from the Middle East, US, Singapore, Australia, UK, Canada and South Africa. This has pushed many developers to cater to this NRI category with residential and commercial projects. Although buying or selling a property in India is easy, there are many NRIs who should know the tax implications while purchasing properties in India.
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Atul Tripathy, an NRI wants to understand the prevailing NRI taxation rules in India, while buying and selling properties. Vaibhav Sankla, director, H&R Block India Private Limited says, “While purchasing the flat you are required to deduct income tax at 1 per cent if the value of the property is more than Rs 50 lakh. However, if you are buying the property from another non-resident then the rate of deduction would be much higher.”
“You need to pay the seller only the balance amount after deduction of taxes. The deducted taxes are to be paid to the Income Tax Department along with a duly filled Challan 26QB,” Sankla adds.
Further, while selling the property, taxes will have to be paid on capital gains (i.e. profit). Sankla advises, “There are certain investments that you can make to minimize the tax outgo. It is very important that you check the tax implications in the country of your residence as well.”
Those who are looking to purchase another property (probably a shop), Sankla says, “For one of the property, income (equivalent to the rent that a similar property would fetch) will have to be offered to tax. One can choose the property for which you will declare the rent depending on what would be beneficial”.
Tax savings
Mahi Bisht, an NRI has sold his ancestral property and is now planning to invest in a plot. He wanted to know whether he will have to pay capital gains tax on the property sold. To this, Sankla says, “Considering the property sold was a residential house/flat, you need to reinvest the amount of capital gain (after indexation) in another residential house to claim the capital gain exemption”.
To save on tax, Sankla adds, “There will be no benefit to re-investment in the plot of land unless you construct residential house on the said plot in a period of 3 years from the date of the sale of original property.”
“You can also claim capital gain exemption u/s. 54EC by investing in certain notified bonds (REC/NHAI),” he mentions.
Can a PIO card holder sell my property in India and reinvest in the UK? Do I have to pay tax and if yes what percentage?
Considering the property was on hold for more than 3 years now and is a long term capital asset, the owner will have to pay taxes at 20.6 per cent post indexation on the amount of capital gains. Sankla opines, “With the amendment brought up by the Finance Act 2014 you will not be eligible to claim any exemption for reinvestment in property outside India. But you can save taxes by reinvesting the amount of capital gain in 54EC Bonds.”
Dhirajlal Rambhia, an expert from Open House lists out the top five do’s before making an investment:
Personal visit to site along with self evaluation of the project, study about builder etc. is very essential. (Online data should be verified before final decision)
A local person/attorney can really help for some miscellaneous jobs.
Before renting the premises, proper care should be taken for getting possession back on expiry of the terms.
If money is to be repatriated out of India, care should be taken of prevailing laws for the same.
TDS at the rate of 20 per cent is deducted from the sale price when any property is purchased from NRI, so that is to be considered.
