When NRIs want a home

In the first part of a se­ries on hous­ing for NRIs, we look at the pro­vi­sions of the In­come Tax Act ap­pli­ca­ble for them

HT Estates - - HTESTATES - Ta­p­ati Ghose & Man­ish Tyagi

For the l arge num­bers of NRIs and PIOs based over­seas, hav­ing a house in In­dia is sym­bolic of an emo­tional and fi­nan­cial link to the home coun­try. They usu­ally want a house for their par­ents or to rent out and at times use it as a base dur­ing their vis­its to In­dia. Th­ese days aapravasi or non-res­i­dent In­di­ans are be­ing urged to re­tain a foothold in the coun­try. Main­tain­ing a house in In­dia is a means of do­ing so.

Prop­erty pur­chase in In­dia is fairly lib­er­alised and sim­ple. Some of the reg­u­la­tory norms should, how­ever, be kept in mind to en­sure com­pli­ance with var­i­ous reg­u­la­tions: tax and ex­change con­trol. This also smoothens the process of a sale of prop­erty in the fu­ture.

Tax im­pli­ca­tions

If the in­di­vid­ual al­ready has a house in In­dia by way of in­her­i­tance, gift or an ear­lier pur­chase, he must keep in mind that in cer­tain cir­cum­stances, a sec­ond house in In­dia may be con­sid­ered tax­able. For a non-res­i­dent, any one prop­erty in In­dia as per the in­di­vid­ual’s choice is treated as self-oc­cu­pied and its an­nual value is com­puted as nil pro­vided the prop­erty is not ac­tu­ally let out (no ben­e­fit de­rived). The other house prop­erty is deemed to be let out even if not ac­tu­ally let out and a no­tional rent as per the pro­vi­sions of the act is com­puted as the tax­able in­come under in­come from the house prop­erty.

In com­put­ing the tax­able in­come of a let-out or deemed to- be-let-out-prop­erty, some de­duc­tions are al­lowed. Th­ese in­clude mu­nic­i­pal taxes paid dur­ing the year, a fixed quan­tum of 30% of rental in­come (after de­duc­tion of mu­nic­i­pal taxes) for re­pairs and main­te­nance charges and in­ter­est charges if the house is pur­chased with a loan. The ac­tual in­ter­est paid on the hous­ing loan is al­lowed as de­duc­tion with no lim­its in case of a rented prop­erty. How­ever, in the case of a self-oc­cu­pied prop­erty, the de­ductible in­ter­est on hous­ing loan is lim­ited to ₹ 2 lakh per an­num.

Non-res­i­dents al­ready own­ing prop­erty in In­dia but seek­ing to in­vest in a new house can look at sell­ing the old prop­erty and in­vest­ing the pro­ceeds in a new one in In­dia. The in­di­vid­ual could avail of cap­i­tal gains ex­emp­tions on sale if the pro­ceeds are in­vested in a new house in In­dia and the pre­scribed con­di­tions are met.

Ben­e­fi­cial pro­vi­sions of a tax treaty may be avail­able to the owner of the prop­erty if the in­di­vid­ual is a res­i­dent of a coun­try with which In­dia has signed a dou­ble tax avoid­ance agree­ment. In such a case, the pro­vi­sions of the In­come Tax Act or the treaty, which­ever is more ben­e­fi­cial, will ap­ply.

Tax de­duc­tion obli­ga­tions

Buy­ing a house prop­erty is likely to re­sult in tax­able in­come for the seller and the tax reg­u­la­tions en­sure that taxes are paid at the time of pay­ment of con­sid­er­a­tion to the seller by way of tax de­duc­tion. The rate of tax to be ap­plied would de­pend on the res­i­den­tial sta­tus of the seller. If the seller is a res­i­dent, the pur­chaser is re­quired to with­hold tax at the rate of 1%, where the con­sid­er­a­tion payable is ₹ 50 lakh or more ex­cept where the im­move­able prop­erty is ru­ral agri­cul­tural land. The 1% tax de­duc­tion rate is re­quired to be ap­plied on the to­tal con­sid­er­a­tion, and not just on amount ex­ceed­ing ₹ 50 lakh and on each in­stall­ment in case the pay­ment is made in mul­ti­ple in­stall­ments. It may be men­tioned that taxes are to be de­ducted at the rate of 20%, if the de­ductee (seller) does not fur­nish a PAN.

Where the trans­feror is a non- res­i­dent, the ben­e­fit of tax with­hold­ing at the rate of 1% is not avail­able. Any sum charge­able to tax for a non-res­i­dent needs to be sub­ject to tax de­duc­tion at ap­pli­ca­ble rates. The buyer may not be in a po­si­tion to de­ter­mine the ex­tent of in­come which is re­quired to be sub­ject to tax or the rate to be ap­plied and may re­quest a cer­tifi­cate from the tax au­thor­i­ties to de­ter­mine the quan­tum of taxes to be with­held. He may oth­er­wise re­quest for a cer­tifi­cate from a char­tered ac­coun­tant, cer­ti­fy­ing the in­come and with­hold taxes ap­pli­ca­ble.

To meet the tax with­hold­ing obli­ga­tions, in the case of pay­ment to a res­i­dent, the pur­chaser is not re­quired to ob­tain a tax de­duc­tion ac­count num­ber (TAN). The taxes need to be re­mit­ted by quot­ing the per­ma­nent ac­count num­ber (PAN) of both the buyer as well as the seller.


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