Tax implications

When buying a property in India, an NRI is supposed to pay registration and other charges. He is then eligible for all benefits equivalent to an Indian citizen in terms of interest paid for the loan.

For a leased property, the NRI’s income received through its rent will come under the income from the property and there will be some percent of deduction applicable to it. The person is also liable to pay tax in his country of residing, unless he is residing in a country that has ‘Double Tax Avoidance Agreement’ with India.

1. What are the taxes you have to pay while purchasing property?

If you are buying a new property, you have to pay Service Tax, VAT and Stamp Duty on the total amount of purchase.

2. What are the income taxes that are applicable on house properties in India?

According to the Indian Income Tax Act, if a person (resident or NRI) owns more than one house property, only one of them will be deemed as self-occupied. There will be no income tax on a self-occupied property. The other one, whether you rent it out or not, will be deemed to be given on rent. And even if you have not given the second property on rent, you will have to calculate deemed rental income on the second property (based on certain valuations prescribed by the income tax rules) and pay the tax thereof.

What this means, is that if you are an NRI and own only one property globally and that property is in India, then you will not have to pay any income tax on it in India.

However, if you are an NRI resident in USA. You own and live in a house in USA and you also own a house property in India. Even if you do not give the property in India on rent, you will have to pay income tax on deemed rent in India. The deemed rent is determined by certain valuation rules prescribed in the Income Tax Act.And you must also know, that even if you have inherited a property in India and that is not your only property, you would have to pay tax on deemed income.

3. What are capital gains on property sale?

The income tax rules define gain in two broad categories; namely short term capital gain (STCG) and long term capital gain (LTCG). Any gains arising by selling a property after holding it for 3 or lesser number of years, is short term capital gain. Any gains arising by selling the property after holding it for more than 3 years comes under long term capital gain.

4. When are capital gains applicable and how can capital gain tax be saved / reduced?

  • The sold property has been withheld by a person for a period of more than three years from the date of purchase / possession.
  • The sale proceeds are invested in a residential property which is bought one year before the sale of property or two years after the sale of first property.
  • The new property is bought after the sale of the first property.
  • Capital Gains Tax can also be saved by investing the sale proceeds in Capital Gain Bonds.