Rental income as well as capital gains has been a fairly lucrative source of income for NRI’s in recent times. Of course these are taxable means of income but they are taxed at different rates in tax on commercial property in India.
In context of such tax on commercial property in India transacted by an NRI, it must be noted that those who are of Indian origin but do not reside here are Non-resident Indians. Whereas, those who are only visiting India are in no way associated to India are Non-residents in India.
For tax intents and purposes these separate categories of NRI’s are treated differently.
NRI diktats for tax on commercial property in India
When it comes to tallying the taxes of an immovable property, the FEMA definition of the NRI is taken into consideration. These NRI’s are also mandated to only deal in residential or commercial property and not any kind of agricultural property unless the same has been inherited by the person.
While citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau or Hong Kong are not allowed to buy or sell such property in India they are certainly allowed to lease the same for less than or equal to 5 years.
The following tax provisions are applicable in case of NRI’s who intend on transacting immovable property:
1. The DTAA
DTAA exists to ensure that none are taxed twice for the same source of income. DTAAs exist between India and some 90 other countries. They help ascertain the tax due from an NRI individual based on their residential status and source of income.
Therefore, whatever taxes that an NRI has to pay on rent-controlling or selling a property here in India, can enjoy income tax exemption on commercial property in their present country of residence.
2. Capital gain calculation
India has the authority to charge an NRI tax on commercial property in India sales profits. If an asset is held for longer than 24 months it is considered to be a long term asset. The NRI can of course file for an adjusted cost of acquisition based on inflation.
In the event the property is sold within this period, the adjustment is not applicable. Long-term capital gains are taxed at 20% and short-term gains at less than that.
3. Calculation of rental income
NRI’s are supposed to pay taxes on properties rented out in India after the deduction of Municipal Taxes, standard deduction at the rate of 30% and interest paid on any loan taken for the acquisition/construction pre-construction of said property.
4. Withholding tax
Tenants are allowed to with hold tax from the rent amount in case the property has been let-out. The same is applicable in the event the property has been and the landlord has incurred capital gains. This can be with held by the payer during the time of credit or actual payment.
The exemptions are at a rate of 20% if the property has been let for over 24 months, and 30% otherwise. A flat 30% can be exempted from the rental amount in case the property has been let-out.
5. Further exemptions
NRI’s can request exemption under section 54/54EC/54F if the gains are further invested. Sec 54 and 54F applies for re-investment in a housing property and 54EC for NHAI and REC bonds.
6. Tax return filing liabilities
NRI’s must file their return of income by the 31st of July should the total tax amount become more than Rs. 250000. Those NRI’s who are earning rentals lesser than this figure only have to file the same to claim the refund of taxes
with held and deposited by the tenant with the government.
NRI’s can avail tax deductions based o Sec 80C to 80TTA which further streamlines their tax on commercial property India.