NRI Tax in India
NRI tax in India is a perplexing topic among NRIs who own property in India. Filing the right amount at the right time is extremely important. But, before moving ahead, one must comprehend the status of ‘Non-Resident Indian’. An NRI is a citizen staying abroad for over 182 days in the current financial year for a business, a job or any other reason. In this blog, we are going to understand the latest tax information that applies to all NRI property holders in India.
Property Tax Implications
NRIs tend to invest money in real estate in India. However, not every one of them knows about the tax implications of their properties. Let’s check them out in detail.
Tax depends on the income made and income from property can be from two types of sources:
- Selling a Property
- Leasing/Renting a Property
Capital Gain On Selling Property
NRIs who are selling a property which is located in India need to pay a charge on the Capital Gain. The tax that is payable on the gain depends on whether it’s a long-term or a short-term capital gain.
If a property is being sold after two years from the date it was possessed, there is a long-term capital gain. This income is taxed at 20% plus additional surcharge and Cess.
In case the property being sold was held for two years or less, it is a short-term capital gain and taxed according to the income tax slab to NRIs.
Rental Income On Property
NRI tax in India on income received via rent is taxable under the House Property and is charged in a similar portion as that of the other Indian citizens. Here is the detailed breakup:
- Out of the aggregate rent received, Municipal taxes are first permitted to be reduced. This is applicable, based on the metro & non-metro location of the property.
- After that, from the adjusted sum, 30% is permitted as a standard deduction and deduction for the interest paid on loan.
- If an NRI possesses more than one property, but neither is utilized for residential purposes or let out, one of them can be shown as self-occupied. However, the lease is computed, and tax applies to the rest of the properties.
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Tax Exemptions On Capital Gains
Every NRI is permitted to claim exemptions under different sections on a long-term capital gain from the sale of the house property in India. These sections can help save on the taxes paid. Below are the exceptions applicable according to the Indian taxation:
1. Section 54 Declaration:
Under this segment, if an NRI sells a private property after two years from the date of procurement and reinvests the returns into another private property inside 2-3 years from the date of sale, the benefit gain is exempted on the basis of the new property cost. Be that as it may, the exempt will be restricted to the total gain on sale. You are additionally permitted to invest the gains in the development of a property, but the construction must be completed within three years from the sale date.
2. Section 54EC Declaration:
If an NRI auctions a long-term resource, i.e., a private property and puts the gains in bonds of REC & NHAI within six months from the sale’s date, he/she will be excluded from the capital gain tax. This amount can be redeemed after five years. The NRI must present evidence to the buyer to ensure direct tax doesn’t get deducted.
3. Section 80C Declaration:
If there is any home loan against property, then NRIs are qualified under 80C for reimbursements of the principal sum. Registration and stamp duty charges paid on the purchase of a property can likewise be claimed under section 80C. Debit towards taxes paid and interest on a home loan is likewise permitted under category 24(b).
4. TDS Implication
According to the Indian IT Act, when an NRI sells a property and if the gain is long-term, 20% TDS is relevant. Similarly, for short-term capital gain, 30% TDS is applicable. This amount can later can be claimed while filing tax returns for the current financial year.
5. IT Return
You should file for IT returns when the total tax deducted ends up being more than what the individual is subject to pay for the financial year. Additionally, while investing money in India, NRIs should remember the tax arrangements in their residence nation too.
Does all of this seem too complicated to you? There’s a simpler option to handle NRI tax in India. That is to hire a property management company! How will they help? In addition to handling everything else, they also handle the documentation and tax filing responsibilities. You can no own, rent or sell a property in India stress free. If you want to learn more: