One of the main concerns of NRIs is how to avoid double taxation. And this is definitely a legitimate concern because nobody wants to be taxed twice for their hard-earned income. One of the key areas that are the cause of concern for many NRIs is the tax implications for buying property in India. Many NRIs wonder what is the tax on NRI property in India. You should know that as an NRI, there are several measures you can take to not only avoid double taxation but also avail the NRI income tax exemption that is available to you. Whether you are looking at the tax implications for buying property or NRI selling property in India tax implications, we have got you covered. We have curated several guidelines on NRI selling property in India tax implications and NRI buying property in India tax implications.
How To Determine Your Residential Status?
Before going any further into the tax implications of buying or selling property in India, you should be able to determine your residential status for the year. This will help you figure out what tax exemptions and rates are applicable to you. For the purposes of taxation, you are considered a resident of India for the current financial year if:
- You have lived in India for 6 months (or 182 days) during the last financial year.
- You have lived in India for two months during the current financial year and have lived in India for one whole year in the past four years.
- Only the first condition listed above is applicable for Persons of Indian Origin (PIO).
If you do not meet any of the conditions listed above, then you are considered as a Non-Resident Indian (NRI) for taxation purposes.
As an NRI, what Tax Liability Do You Have In India?
Your tax liability in India depends upon your status as a resident of India. If you are a resident of India for the current financial year, then your global income will be taxed in India for that financial year. If you are not a resident of India for this year, then only the income generated by you in India will be taxed in India. Salary received in India, income from the sale of property or incomes from fixed deposits are all examples of income generated in India. Any individual earning more than INR 2, 50,000 would be expected to file their income tax in India.
What Is Double Taxation And How To Avoid It?
Double taxation is when you end up paying taxes twice for the same income. On your global income, there are cases where people have been taxed for the same income once in their country of residence and once in India. In order to avoid this, you can make use of the provisions of the Double Taxation Avoidance Agreement (DTAA). These are international treaties signed between two countries which make provisions that ensure that you will not be taxed twice for the same income. There are two methods under this:
- Exemption Method – Under this method, the resident country exempts tax on income earned from another country
- Tax Credit Method – Under this method, you will get tax credits in one country for income tax paid in another country.
NRI Buying and Selling Property In India Tax Implications
If you are buying property in India as an NRI, then you will have to pay a withholding TDS at 1% for properties worth more than INR 50 lakhs. You can be exempted from wealth tax if this is your sole property and is declared as “self-occupied”. If you have more than one property in India, then you will have to rent out the second property for at least 300 days of the year in order to avail an exemption on the wealth tax. Remember that any income earned from renting out properties in India is taxable in India. Further, if you have purchased a property in the current financial year, you may be eligible to claim a deduction of up to INR 1 lakh from your taxes. As an NRI, you will get added benefits if you purchase a property using a housing loan from India. A resident Indian can claim a tax deduction of up to INR 1.5 lakh, but for an NRI there is no such upper limit.
Now that you have an idea about what are the tax implications for buying property in India and how you will be required to pay tax on NRI property in India, you are already on your way to saving your hard-earned money. Not only should this guide help you avoid double taxation, but it should also help you understand what are the NRI income tax exemptions available to you.