In a statement, the Income Tax Appellate Tribunal (ITAT) outlined the tax regulations for non-resident Indians (NRIs) buying real estate in India. The difference between the stamp duty value and the flat agreed amount on the day of property registration will not be taxable, according to the authority.
Section 56(2)(vii)(b) states that when the date of property registration and date of flat agreement are not the same, the payable stamp duty on the date of flat agreement will be considered. Payments made via banking channels and other modes except from cash are covered under the section.
Section 56(2)(vii)(b), which is covered by this ITAT order, has been replaced by section 56(2)(x), according to one of the tax partners at CNK & Associates, Gautam Nayak. However, because the provisions of the modified statute are similar, the ITAT order would also apply to it.
Tax Implications for NRIs
When it comes to taxation in India, the government seeks taxes on almost all the earnings made in India by resident Indians as well as from Non Resident Indians (NRIs). However, just like resident Indians, these NRIs are also eligible for various tax benefits and subsidies while purchasing a residential or commercial property in India.
An NRI, or Non-Resident Indian, is an individual who holds Indian citizenship but resides in India for less than 182 days during the previous financial year. Additionally, an NRI can also be someone who goes or stays outside India for various reasons, such as employment, business, vocation, or any other purpose indicating their intention to stay abroad for an uncertain period.
On the other hand, a PIO, or Person of Indian Origin, is a citizen of a foreign country (excluding Bangladesh or Pakistan) with certain connections to India. This includes having held an Indian passport at any time, having Indian parents or grandparents, or having a spouse who is an Indian citizen.
What are the tax Implications for NRIs buying Property in India?
NRI property purchases in India have tax repercussions. Determine whether the seller of the property is a resident or a non-resident in accordance with the Income Tax Act of India in order to better grasp this.The amount of TDS, or tax deducted at source, that an NRI must pay when purchasing an immovable property in India is determined by the type of capital gains realized and the residency status of the individual selling the property.
- If an NRI buys an immovable property in India from a resident, he must deduct TDS at 1%, if the sale consideration value exceeds Rs 50 lakh.
- On the other hand, if an NRI purchases a property from a non-resident, and if long-term capital gains (LTCG) are applicable, then TDS deduction should be at 20%.
If short-term capital gains apply, TDS at the rate of 30% should be subtracted. When a property is sold two years or fewer after being purchased, short-term capital gains are applicable. A long-term capital gain occurs if the property is sold two years after the original purchase.The tax deduction must also be deposited within 30 days of the deduction. Taxes that are not deducted or are deducted late will be penalized with a 1% monthly late deduction TDS penalty.
Tax Benefits to NRIs
Listed below are the tax benefits which can be availed by NRIs:
- In the case of a home loan, an NRI can claim a standard deduction of 30%, deduct property taxes and use interest deduction.
- If an NRI’s only annual income in India is the income from investment in Indian assets where TDS has already been deducted, the NRI is not required to file an IT return. The exemption needs to be claimed under Sections 54, 54F and 54EC (unlike the short-term capital gains)
- Also allowed a deduction for principal repayment and claim on stamp duty and registration charges (paid on the purchase of a property) under section 80C
- An exemption is available if capital gains from the sale of the first property are reinvested into specific bonds.
- A deduction is only allowed in the following cases:
Allowed for an insurance policy only if the policy is in the NRI’s (or his/her family’s) name, with a premium less than 10% of the sum assured
Included interest paid on tuition fees and educational loan for a full-time education course in any school, college or university in India
It can also be claimed on donations which have been made for any charitable cause.
For investment in Equity Linked Savings Scheme (ELSS) from mutual funds on amounts up to Rs 1.5 lakh
On interest earned on Govt. issued bonds and savings certificates.
Available for the premium which has been paid for health insurance, amounting up to Rs 50,000 for senior citizens/ Rs 25,000 for the insurance of self, spouse, and dependent children
Other Benefits and Subsidies for NRIs
The annual family income is less than Rs 18 lakh
The applicant or a direct family member has not already availed of the PMAY scheme
The applicant or a direct family member does not own a home anywhere in India