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Is NRI income from Indian assets taxable?

Posted on June 30, 2014

Mohit has a three-bedroom apartment in Noida which is rented out for Rs 35,000 a month. He also has a share in agriculture land that was once owned by his father and uncles. He gets income from the land too.

The rental income from the flat and from land is deposited in Mohit’s bank account in India.

Does Mohit need to pay tax on this income in India? Is income earned by NRIs on assets in India taxable?

NRI tax on property income in India

As per the Indian Income Tax Act 1961, all income earned or accrued from any asset in India is taxable in the country. Mohit will need to pay income tax on both – rental income from the flat as well as income from agriculture land.

It doesn’t matter whether the income is earned by a resident Indian or a non-resident Indian.

It is mandatory to file income tax returns if the total income earned in India exceeds Rs 200,000. Mohit’s income from the Noida flat alone is Rs 420,000. So he need to file the returns and pay tax.

Mohit’s income from agricultural land is exempt from tax. So he will not have to pay any tax on agricultural income. However, income from agricultural land will need to be declared in the income tax returns.

Because Mohit’s income is less than Rs 5 lakh, he can file his IT returns either in paper form or electronically. For those whose income exceeds Rs 5 lakh duriing 2013-14, cannot file paper returns. They will need to file their income tax returns electronically.

As per a directive issued by the Central Board for Direct Taxes (CBDT), all persons, whether resident Indians or NRIs, whose income exceed Rs 5 lakh per annum, will need to file their returns electronically. This rule is applicable from this financial year – 2014-15.

The due date for filing returns for 2013-14 financial year is 31 July 2014.

Do NRIs have to pay advance tax on income in India?

Any person, whether resident or NRI, whose tax liability is likely to exceed Rs 10,000 in any assessment year is required to pay advance tax.

Failing to pay advance tax will attract an interest of 1 percent per month.

Can I claim exemption for my income in India?

Yes, Indian government is kind to allow exemption for certain types of income, in a bid to encourage savings and investment.

The exempted income includes:

  • Dividends and long-term capital gains from equity shares and equity mutual fund
  • Interest received on the NRE and FCNR accounts
  • For rental properties, an ad hoc deduction of 30% of net annual value is excempt as repairs and maintenance expenses
  • For rental properties, mortgage interest is also exempt

What if I sell my apartment in India?

If the apartment is more than three years old, long term capital gains tax will be applied on it, unless you use the sale proceeds to buy another property (either land or house). The long term capital gains tax is quite heavy – 20 percent of the transaction amount.

Can I transfer house sale proceeds to US?

An NRI who sells his house/land in India may repatriate funds received from sale to the United States, as long as he has paid tax in India. Income from sale of immovable property attracts long term capital gains tax. So non resident Indian will need to pay the tax and obtain a certificate from a chartered accountant.

Who is an NRI as per income tax rules?

India’s tax department will consider you a non-resident Indian if:

  • You lived outside India for 182 days or more during the previous year.
  • You did not live in India for more than 60 days during the previous year; and again for a combined 365 days or more during the previous four years prior to the previous year.
I am a non-resident Indian (NRI) and have a piece of agricultural land and an apartment in India. I earn agriculture income and rental income from these two. Do I need to file income tax return? If yes, kindly advice on the procedure. Also, can an NRI buy agricultural or farmland in India?Read more at: http://www.livemint.com/Money/RnWrp4KRtUwM8iTL31p52L/Income-arising-from-Indian-assets-is-taxable-for-NRIs.html?utm_source=copy
I am a non-resident Indian (NRI) and have a piece of agricultural land and an apartment in India. I earn agriculture income and rental income from these two. Do I need to file income tax return? If yes, kindly advice on the procedure. Also, can an NRI buy agricultural or farmland in India?Read more at: http://www.livemint.com/Money/RnWrp4KRtUwM8iTL31p52L/Income-arising-from-Indian-assets-is-taxable-for-NRIs.html?utm_source=copy
I am a non-resident Indian (NRI) and have a piece of agricultural land and an apartment in India. I earn agriculture income and rental income from these two. Do I need to file income tax return? If yes, kindly advice on the procedure. Also, can an NRI buy agricultural or farmland in India?Read more at: http://www.livemint.com/Money/RnWrp4KRtUwM8iTL31p52L/Income-arising-from-Indian-assets-is-taxable-for-NRIs.html?utm_source=copy
I am a non-resident Indian (NRI) and have a piece of agricultural land and an apartment in India. I earn agriculture income and rental income from these two. Do I need to file income tax return? If yes, kindly advice on the procedure. Also, can an NRI buy agricultural or farmland in India?Read more at: http://www.livemint.com/Money/RnWrp4KRtUwM8iTL31p52L/Income-arising-from-Indian-assets-is-taxable-for-NRIs.html?utm_source=copy
Loans Property

Will LVR home loan restrictions go by Christmas?

Posted on May 19, 2014

The Reserve Bank of New Zealand’s indication that the loan restrictions (LVR) imposed last year will be eased toward s the end of 201 has come as a relief for many first-home buyers as well as home sellers.Buy House auckland new zealand

This is welcome news for provincial New Zealand, where the restrictions
have had a significant impact on an already weak market, says Hayden Duncan
Chief Executive Officer of Harcourts New Zealand, one of the leading real estate agents.

“In the Central, Wellington and South Island Provincial regions average sale prices remain in the $300,000s and have done so for a number of years. LVR restrictions were not needed here and have prevented first home buyers achieving the dream of home ownership.”

“In Auckland and Christchurch the overheated markets are the result of
simple low supply and high demand.”  Hayden suggests fast tracked
and quality construction in these two cities as the best way to sensibly
moderate rising costs.

The restrictions will go at the right time as New Zealand expects net migration to grow in the next 12 to 18 months.

“The divergence in the annual budgets with spending slashed in Australia and tax rates rising, versus scope for tax cuts here in New Zealand down the track will reinforce the massive switch in Trans-Tasman migration flows underway,” says Tony Alexander, chief economist of Bank of New Zealand.

“Before the end of this year it is likely that for the first time since 1991 there will be a net gain to our population from Trans-Tasman flows.”

However, the reserve bank governor’s comments come with caveat. “Before removing them (LVR), we want to be confident that the housing market is responding to interest rate increases; and that immigration pressures are not causing a resurgence of house price pressures. It will take some time to gain this assurance. At this stage we consider the earliest date for beginning to remove LVRs is likely to be late in the year.”

That’s a tall order, and the removal of LVR remains a speculation at this stage, and Tony Alexander believes that it is unlikely that the LVR restrictions will be relaxed by the end of the year.

“The rules are doing the job of about 0.25% – 0.5% worth of official cash rate rises. Were the rules to be removed then the OCR would need to be that amount higher than would otherwise be the case.

“Given that rising interest rates lift the Kiwi dollar and that this is something the RB would like to avoid, one condition which would have to be met is a falling NZD. Is that likely?”

The Reserve Bank had introduced the loan-to-value ratio (LVR) restrictions in October 2013 to help lower house prices, and avoid the risk of a housing bubble building up.

New Zealand banks were given a six-month window to comply with the new speed limits restricting new high-LVR lending at no more than 10 per cent of their total lending.

A high-LVR loan is where the loan is more than 80 per cent of the value of the property.

However, banks over-estimated their LVR lending and applied stronger breaks resulting in high-LVR loans falling to 6%, much below the apex bank’s 10% target.

The high-LVR loans were as high as 25% in September 2013, just before the restrictions were applied.

News Property

Indian elections slow down property market

Posted on April 17, 2014

While Indians go out to vote in the world’s largest voting exercise, the real estate market is eagerly waiting for the outcomes of India’s general elections.

The activity in the property market in India has slowed down in the lead up to what is being described as the most consequential elections in India’s post-Independence history.

Buy sell property in India

Over the last few quarters, political uncertainty has considerably weakened buyer confidence in many regions, says Venkat Iyer of India Real Estate Forum based in Australia.

“A decisive win for any of the alliances will fortify the outlook of the homebuyer and the property market will see a return of buyer demand due to the boost of confidence,” says Venkat.

“Post elections, if the road to recovery is unhindered, property buyers may very well re-enter the market in good numbers.

However, Venkat’s response is very cautious. “At present, the key factors at play on the Indian real estate are unsold inventory, absorption and interest rates. It is unlikely that these factors will change immediately post polls, regardless of which party wins.

“Over the longer term, what will matter most to the real estate sector are a hard relook at FDI in housing, REIT legislations and the effective implementation of Real Estate (Regulation and Development) Bill.

However, it is not just the political stability that will decide the course of progress for the property market.

“With the incoming government, there are other economic contingencies like employment, interest rates and infrastructural changes (motorways, new connectivity, rail projects etc.) that will have a substantial effect on the Indian real estate market.

Venkat is hopeful that whoever wins the elections will follow through on their election promises. “All the political parties are making strong assertions that their leaders will deliver continuous years of prosperity through active growth and development plans. But the real impact and competence of any new changes is something that only future can tell!

Venkat is appealing to Indian voters to vote diligently. “If India truly wants to become a developed nation and drop the tag of a ‘third world’ or a ‘developing nation’, citizens need to choose a leader who promises and delivers clean and transparent governance with a people-centric approach.”

India has gone to vote on 7 April. More than 814 million people — a number larger than the population of Europe — are eligible to vote in the world’s biggest democratic exercise. Voting will be held in nine stages, which will be staggered until May 12, and results are due to be announced on May 16, 2014.

Business Money Property

NRI income tax return: deemed rent

Posted on July 30, 2012
NRI Income Tax

NRIs (Non Resident Indians) investing in real estate in India get excited about high returns on property, but don’t consider the NRI Income Tax rules.

Filing tax returns are a priority now that the due date for the year 2011-12 is close. NRI Income Tax rules has some strange provisions that beat common sense, but still need to be followed by locals as well as expats.

Deemed rent

If you own two or more properties in India, only one will be considered as self-occupied. This rule of the Indian Income Tax Act applies to NRIs as well as residents.

NRI Income Tax

This means, you don’t have to pay income tax on owner-occupied property. All other properties, whether rented or not, will be considered an investment property or rental property.  Yes, it doesn’t matte whether you have rented the other property or not. That’s the weird part of the NRI income tax rules when it comes to expats property tax.

So what do you do in such a situation?

You calculate estimated rent for your other properties, and pay tax on that. Essentially, you will be paying tax on income (rent) that you have never received. Unfair as it may sound, that’s the law.

So how do you calculate the deemed rent? There are some provisions given in the Indian Income Tax rules that you can use to calculate the deemed rent on your investment properties in India.

In short:

If you own only one house in India in which you live, you don’t have to pay tax on it. If you own only one house and you don’t live in it or rent it out, it will still be considered self-occupied and there is no tax to be paid

If you are an NRI and given out the only house you own on rent, then you pay income tax on the rent you receive.

If you own two houses, and given both out on rent, you will have to pay tax on the rental income of both properties.

If you own two houses, and neither is given out on rent, then one will be considered self-occupied and the other will be deemed to be receiving rent, and you will pay tax on the deemed rent. The good news? You can decide which of the two houses to consider for deemed rent.

What constitutes property under Indian Income Tax Act?

Property is not limited to houses alone. It also includes offices, factories and warehouses. The strict definition of property under Indian Income Tax Act is Property is defined as ‘building and any land appurtenant’. It does not include only land holding.

However, if you own even one commercial property, you will have to pay tax on on its rent – whether it is rented or not.

So where does this ridiculous law come from? That’s anybody’s guess, but wait till you hear the really bad news.

I live in my own home in the US, but have one house in India. What’s the tax I need to pay?

Indian Income Tax Act says that when you own two or more properties, only one will be considered self-occupied. All other properties will be deemed to be receiving rent, even if they are lying vacant. The irony is, the law was written at a time when not many NRIs owned houses in India and abroad at the same time. So the law does not specify whether the law applies to houses owned in India alone.

Say you are an NRI who lives in New York and you own the house in which you live there. You also own a house in Delhi, which is lying vacant. For the purposes of the Indian Income Tax Act, you own two houses – irrespective of the fact that one house is outside India. You will have to pay deemed rent on your house in India.

I live in a rented house in Singapore but own a house in Mumbai. Will I pay tax in India?

If you own only one house, which is in India, that house will be deemed to be self occupied. No tax for you, madam!

But I have inherited my house in India

You are the owner of the inherited property and the same rules apply.

So how much tax do I have to pay on deemed rent?

The Indian Income Tax Act has some valuation prescription that needs to be used to calculate deemed rent. This valuation is based on municipal value of your house, its construction cost, the rent as per the Rent Control Act, and the rent of similar houses in the neighbourhood. The highest of these factors is considered annual value of your house.

You can deduct 30% towards expenses, whether are not you have incurred any expenses. You pay tax on the balance amount.

For more details, visit the official Indian Income Tax Department website.

Also see the tax calculator by the Indian Income Tax department.

(This article is for guidance only. The Global Indian accepts no responsibility for its accuracy. Please consult your financial advisor or chartered accountant.)