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03 April, 2019
The FEMA (Foreign Exchange Management Act) states that Indian residents who live outside the country are permitted to buy real estate in India. However, they cannot buy agricultural land, farmhouse or plantation property. Evidently, the NRIs have a different tax liability, in case they are purchased for sole investment purpose, rental or self-use. Interestingly, NRIs face no restriction on the number of properties they buy in India. Investing in real estate in India is a good idea, as the NRIs can generate a recurring income from the properties in the form of lease and rents.
In each of the cities, NRIs have a different tax liability, that is, capital appreciation, rental income and actual use. In case of self-occupied property, no tax implication is applicable. However, if an NRI owns multiple properties that are self-occupied, only one of these will be considered to be self-occupied. The other properties will be considered to be let out. The rent will be taxable under these circumstances.
For NRIs, it is important to remember that the income generated from renting out a home is taxable, and they need to pay tax under the head income from residential property. It is permitted to consider a deduction of 30% for maintenance and repairs, along with other categories of deduction. These include municipal tax from the income generated as rent. Besides, the NRIs can also get a deduction up to INR 2 lakh on the interest that is payable on any loans that are taken on that property.
In case an NRI holds a property solely for investment purposes, the capital gains will be arising when the property is transferred and the NRI needs to pay tax. These capital gains are referred to as long and short-term capital gains, based on the duration of the property being held. In case an NRI holds a property for 24 months or a lesser span, it is considered to be a short-term capital asset. As per the tax slabs of the NRIs, this short-term capital gain is taxable. On the other hand, gains arising from a property that has been held for over 24 months is taxable as per the long-term capital gain. The tax rate in these cases is 20%, along with the cess and surcharge that is applicable. The NRIs can also claim a deduction if they invest these capital gains in a new residential property. They can also invest the money in certain funds, as per the norms of the Income-tax Act, 1961.
For NRIs, this is a good time to invest in real estate in India. Regulations like RERA and GST have been implemented in the last couple of years, bringing more transparency in the industry. This is a good time for NRIs to buy property in India. They can enjoy a good return in the coming years.