Introduction
The
Foreign Exchange and Management Act, 1999 defines Non Resident Indian (NRI) to
be “an India citizen or a foreign national of Indian origin who has left the
country for the purpose of doing business or employment which indicated his intension
to stay outside for indefinite periodâ€. Otherwise an individual will also be
called NRI if his stay in India has been less than 182 days in the previous
financial year. The Income Tax Act, 1961 indirectly mentions about an NRI.
Section 6 of the IT Act mentions criteria for a person to be a resident of
India and those who do not fulfill it are non-resident. According to this Act an individual will be
treated as resided of India if he/she resides for at least 182 days in India
for the preceding financial year or for at least 365 days in the previous 4
years and 60 days in the continuing year.
How to deal with their
property
The
options available to NRIs are: purchase of the property, sale of the property,
and rent of their property.
If an NRI’s who have acquired immovable
property in India by way of purchase or inheritance need to take care of the
rules and regulations and the laws applicable on it. Section 6 (3), (4),(5) of
the FEMA, 1999 empowers RBI to make regulations from time to time for governing
this. The Income Tax laws are also to be
taken care for paying taxes in these properties. The property whether acquired
or purchased has to be taken care by paying proper tax otherwise if it is
becoming difficult to maintain that property it will be feasible to sell it.
The
purchase of property by NRI
An
NRI having a valid Indian passport can acquire any number of immovable properties
in India both residential and commercial other than an agricultural land,
plantation property and farmhouse unless it is acquired as a result of
succession or gift. Section 80C on the Income Tax Act, 1961 empowers an NRI to
claim a deduction of Rs. 1 lakhs on the acquisition of the property. Every
purchase of property comes with stamp duty, registration charges and service
tax which will differ accordingly if the property is under construction or is
an apartment.
Citizens
of Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan, China, Afghanistan, Iran
cannot acquire any immovable property in India without the permission of RBI.
Sale
of the property by NRI and Tax payable
The
NRI has to take the permission of Reserve Bank of India for selling his
property in India. Also if the NRI wants to sell his inherited agriculture
land, farmhouse or plantation land it should be sold to an Indian citizen only
who is resident Indian. Though the NRI who inherited or owned a property at the
time when he/she was Indian resident can gift or transfer, sale, rent the way
they want. The NRI have to pay tax based
on the capital gains.
Tax
payable: What tax is to be paid depends upon whether it is a long
term capital gain or short term capital gain? Gains are calculated by taking out
difference between sales value and indexed cost. Indexed cost is that cost of
purchase which is adjusted to inflation. The chartered accountant can help to
get the indexed cost.
When
any house property is sold within two years from the very date when it was
owned by an NRI it comes under the ambit of short term capital gains otherwise
if the house property is sold after two
years it is counted under long term
capital gains. In the Budget of 2017 the period of three year has been reduced
to two years for calculation of capital gains.
But
when the property has been acquired by way of inheritance the NRI has to
calculate the capital gains from the date when it was purchased from the
original owner to see whether will come under short term or long term capital
gain to pay the tax accordingly.
The
long term capital gains are taxed at the rate of 20 percent. While the short
term capital gains are taxed as per the normal tax bracket applicable on him.
When the NRI sells property the buyer is liable to deduct the tax deductable at
the source (TDS) at the rate of 30 percent if property is sold within two years
of purchase and TDS of 20 percent if sold after 2 years.
When property
is given as a gift and Tax payable
The
NRI can gift his property and remit the money outside India. But there are
certain restrictions on gifting of property that is in case of gifting of
inherited property it can be given only to the one who is resident in India or
NRI or PIO. In case if the property is gifted to a non relative than the person
receiving the property has to pay tax based on the market value of the property
got as a gift.
The
continued ownership of inherited property and Tax payable
A
person who is NRI based on the income tax laws has to offer some part of his
income earned from the inherited property in India. If the inherited house
property is vacant that is if he/she has kept it for their stay when they are
in India will be not covered under taxation. In contrast if they have more than
a single house property including the inherited one and they are keeping it
vacant than they have to chose one of them as self- occupied and has to pay
notional rental income according the prevailing market rates. The NRI has to
file his income tax returns in India based on income tax slab rates for NRI.
Can an
NRI rent his property in India
Yes,
NRIs can rent their property in India and the income generated from it will be
repatriated in NRE/NRO Account. It will be taxed in India and the rent payer
has to deduct 30 percent TDS from the rental income. Any NRI whose total income
including rental income is less than 1.6 lakhs rupees can avail TDS exemption.
Tax
exemptions for NRIs under the Income Tax Act
Exemption
can be availed under Section 54 of the Act and Section 195 mentions about
provision of tax exemption certificate. Tax exemption is available on total
capital gain on sale and only on long term capital gains on sale of house property.
And the thing to note in this case is that the house property should be self occupied
or let out. The property to be sold can
be acquired a year before the sale or 2 years after the sale of property
acquired by a person. The capital gains can also be invested in construction of
a property in India alone which has to be completed in 3 years. This exemption
is only available for a single house property only. And also the new house
property should be bought in India itself.
In case you are not able to invest the
capital gains until the return filling date in the financial year in which the
property is sold it is mandatory to deposit that amount in any bank as per the
Capital Gains Account Scheme, 1988 and this amount will be tax exempted.
Section 54F of the Act provides
exemption on sale of any capital asset other than a residential house property.
Under this provision exemption can availed if the NRI has purchased a house
property within one year from the date of transfer or after 2 years from the date
of transfer of capital asset. Else if it is under construction it should be
completed the within 3 years from the date of transfer of capital asset and
also the house property should not be sold within 3 years .
Section 54 EC of the Act exempts if
capital gains are invested in Bonds issued by National Highway
Authority of India or Rural Electrification Corporation specified for this
purpose only. These bonds cannot be sold within 3 years as it will be redeemed
after that period. Investment in these bonds could be up to limit of fifty
lakhs rupees. It has to be taken care that no TDS is deducted on capital gains
or if it is deducted it will be refunded at the time of filing of return.
Repatriation
For
repatriation the definition of NRI given in FEMA will be followed. The amount
to be taken back from India by an NRI should not exceed US$ 1 million in one
financial year.
When
immovable property is purchased and sold: A person referred in Section 6(5) of FEMA or
their successors except with prior permission of RBI cannot send money of sale
proceeds outside India. When an immovable property is sold other than
agriculture land or farm house the authorized dealer will allow repatriation of
sale proceeds if all regulations of FEMA are met like the property sold was
legally acquired at that time; the amount to be repatriated should not exceed
the amount paid out of fund in FCNR Account or NRE Account or received from any
other banking channel.
When
immovable property is inherited: The NRI must produce the
documents of the property acquired or inherited. The gains of the property that
is sold or the rent incomes will be repatriated by NRO Account (Non Resident
Ordinary rupee account). If remittances exceed the limit of US$ 1 million in a
financial year prior permission of RBI is needed. In case of deed of settlement
by parents or close relatives tax clearance certificate and NOC from income tax
authorities is to be presented for remittance.
The
NRI have to obtain the certificate from chartered accountant in India and
submit it to the bank to get the money transferred abroad. The certificate is
called ‘Form 15CB’. Another Form 15CA has to filed with the tax authorities.
All this procedure is to validate that the money which is being taken abroad is
legal.
Conclusion
NRIs
can purchase any immovable property (other than agriculture land, plantation
property, farm house) in India. NRI can also transfer any immovable property in
India to any resident Indian. He can also transfer any immovable property
(other than agriculture land, plantation property, farm house) to any other NRI
or PIO. NRIs must ensure that they do not get caught with fake property dealers
for which they can get advice of legal experts. Remittance of funds from sales
of property can be easily done following the lawful procedure. The government
and RBI are trying to boost investment of NRIs in India and are simplifying the
laws for this. The NRIs must keep in mind while dealing with immovable property
whether purchase, sale or rent it must well thought, properly evaluated and
then implemented.