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Tax Implications on NRI Investment in India – Explained

By 24/12/2019Posts

With government and tax reforms significantly opening up to them, it is time for non-resident Indians (NRIs) to invest in India following a simple guide to buying property. Indian expatriates have made significant contributions to the Indian economy through their investments, mainly in the real estate sector. By investing in India, they maintain an emotional bond with their homeland and make use of these investments for retirement or otherwise. Although they have access to investments in India like the native Indians, the tax rules and incentives are very different for them. For one, when an NRI makes some investments in India, they are asked to pay 20% tax. However, there are a lot of home financing options that NRI investors can choose from.
Under the Income Tax Act, 1961 (Indian Tax Act), there are some provisions for taxing one NRI based on two streams in the real estate sector – the income generated by the transfer of property and the income from renting the property.

Here are the following tax implications on NRI investment in India:

1.According to the Foreign Exchange Management Act (FEMA), there are different tax provisions for Indian residents and non-resident Indians. In terms of tax benefits, an Indian resident means someone who has lived in India for at least 182 days during the financial period. In addition, Indian residents are those who have lived in India for 60 days in previous years and at least 365 days in previous four years.

2.NRIs are taxed based on their earnings from India. Generally, they are taxed for the salary they earn, the rental income from their property in India, the income they earn from their fixed deposits in India, the transfer of interests and assets from banks based on their savings account in India. In India.

3.To understand the tax implications on NRI investments in India, one must also understand that there are some tax deductions available to NRIs. Under Section 80C, you can claim tax deductions of Rs 1.5 lakh from your total income. These deductions include the payment of a life insurance premium (if less than 10% of the premium amount), the payment of child tuition, investments in the Equity Linked Savings Scheme (ELSS), and EMI repayment for property purchases.

4.Under Section 80D, the Government of India allows a citizen to obtain tax deductions on medical insurance. NRIs can claim this deduction for self, spouse or children.

5.Double Tax Avoidance Agreement (DTAA): DTAA refers to an agreement between two or more countries that benefits the public in avoiding double taxation from the same income. In other words, DTAA applies to those who are not residents of one country but earn income from another country. Countries such as Canada, the UAE, Singapore, Germany, Australia, the UK, the USA and Mauritius allow the agreement.

Regulations for NRIs investing in Indian real estate:

Among the tax exemptions, it should be noted that there are certain tax withholding obligations imposed by the Income Tax laws, especially those involving property purchases from Indian residents and non-resident Indians. No wonder they say that for NRI investments, real estate is a good option.

1.In terms of property purchase, NRI may use Section 80 of the Income Tax Act of 1961. Whenever a property is purchased, it is for self-use, especially if it is the only property that an NRI has. If the purchase is through a home loan, then interest is deducted from all taxes using Section 80C, allowing a maximum of Rs 1.5 lakh for tax deduction. If an NRI has more than one residential property, then one of the homes will be self-occupied, and the rest will be evicted.

2.At the same time, rented property can be used as a form of secondary income. From the accrued rent, interest can be deducted for the taxable amount. 30% of the proceeds can be opened for exemption with a focus on deduction and home maintenance.

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