RBI Tax Implication for the NRI Home Buyers

No matter what part of the world you reside, buying a home in India is a dream for many. The Indian laws over the years have made the acquisition process easier and thus number of NRI show interest in buying property in India.

With the falling price of Indian rupee property market is attracting the NRIs. Yes, NRIs can buy property in India accept agricultural land, plantation lands, farmhouses, etc even cannot acquire property as a gift. Well, there is no restriction in inheriting such property.

Do they need permission from RBI for the purchase? –

No, an NRI does not need permission from the RBI to buy a residential or commercial property in India.

How Do NRIs fund their purchases? –

As there are no upper limits for remittance of the fund, so with the use of regular banking channels, and NRE, NRO or FCNR accounts NRIs can fund their purchases.

They can also opt for interest free loans from the Indian relatives. However, there is an FEMA of $200,000 per financial year under the Liberalized Remittance Scheme, and even NRI are subjected to TDS for purchase over 50 lakh.

Tax Assumptions of NRI Property Buyers in India

Rent received from the property – Rent received is taxable, and for that, NRI has to file a tax return in India in case the rent exceeds the threshold limited with other income. Rent will be taxed in the NRIs country of tax residence. Under the Double Tax Avoidance Agreement (DTAA) NRIs might receive some tax relief if they stay in tax resident countries. This will helps to get credit from the paid taxes in India.

Deductions against the property – Municipal tax, housing loan payments are deductible just like other citizens of India. A standard reduction of 30% on the net rent obtained from repair and maintenance, irrespective of the total expenditure. Other deductions include housing loan principal repayment, stamp duty and on registration under section 80C for overall limit 1 Lakh per year.

Vacant Property – The tax value is NIL for vacant property only deduction available on such property is interest on housing loan up to Rs. 1.5 lakh per annum.

Wealth Tax on NRIs – NRI gets exemption from the wealth tax on a property that is under rent for more than 300 days. The value of second and subsequent vacant properties is subject to wealth tax, at the rate of 1% in excess of Rs. 30 lakh.

Property Sales Related Tax Charges – NRIs fall under capital gain tax in India just like other residents. For properties held for 36 months, they can get long-term capital gains and exception for investing in another’s house or property. Relief is available in the form of credit for taxes paid in India in case they stay in tax resident countries.

Limits and conditions on repatriation – Well the limits and conditions for repatriation differs based on the funds used for buying property in India. If property acquired as per the foreign exchange laws, then the amount of repatriation price will remain restricted to initial purchase cost. Gains made on foreign source funds falls under repatriation of general limit of 10 lakh per financial year.

These are some of the solutions to make property buying easier in India for the NRIs. For exploring more, keep a tab on the Tax Section Rules laid by RBI.

Author's Bio: Moumita Dasgupta, a financial blogger and the owner of bizandfiz, shares her knowledge and expertise of various financial topics. A clear view on market, business, Forex, funds, personal finances etc. are the subjects she perfectly underlines through her articles.  Find Moumita on Google+