Taxation Tips for NRIs Investing in Property in India

2bhk_flatsWith the real estate market booming in India, the trend of investing in property is on the rise among the well-heeled. Among the people investing in Indian real estate every year, a significant portion constitutes of non-resident Indians. Many NRIs buy property in India because they either plan to return to their home country or they plan to sell off the property some years later and make capital gains. But even when buying property from the best builders in Lucknow, non resident Indians often face a lot of hassles in the purchase of the property and while paying taxes. Many NRIs aren’t aware of the taxation system in the country and often land in a soup. The following tax tips are meant to make investing in property easier for NRIs.

  1. While paying taxes on the property, the taxpayer would be eligible for indexation benefits, which means the cost of the house would be multiplied by the cost inflation index of the year of sale and divided by the cost inflation index of the year of purchase. These indices announced by the income tax department every year will result in an increased cost of the house and a lower cost of the house while calculating long term capital gains.
  1. A non resident can claim tax deductions on expenses such as brokerage fees, travel expenses, etc while calculating long term capital gains.
  1. Tax exemptions on long term capital gains can be claimed by reinvesting in another property within two years of the sale of the house or before a year of sale of the old house. The amount of deduction is lower than the cost of the new house and the long term capital gains. If the cost of the house is equal to or more than the long term capital gains then total exemption can be availed. In case the reinvestment cannot be made within the stipulated period then the money should be invested in a capital gains deposit scheme.
  1. Tax exemption can also be availed of by investing in a capital gains tax savings bond within six months from the sale of the house. The maximum amount allowed foe such investment is limited to Rs 50 lakhs. The bonds are for three year periods at a rate of six per cent per annum. Interests are taxable.
  1. Non resident taxpayers may have to pay a TDS of 23 per cent. Taxpayers may make an application to the IT department for lower rate of TDS.
  1. The income tax implications must be checked in the country of residence. Many countries require their residents to pay tax on their worldwide income. In case the person is required to pay income tax in the country of residence, then he/she can receive a credit of income tax paid in India.

The best builders of Lucknow can advise non residents on income tax requirements while investing in a property in India. NRIs should do a thorough research and talk to relevant people before investing in property.


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