Tax implications for your Indian Properties
The real estate market has always been one of the most lucrative ones for investment. This applies to residents of India as well as non-resident Indians. However, there is a small aspect that not many are aware of or pay a lot of importance to, taxation.
If you are a currently in the United States of America and there is a property that you own in India, you are liable to pay taxes owing to certain terms and conditions. We will find out more about those situations or scenarios where you will end up paying taxes for those properties.
Before we get to other details, it is important to know your residential status. A Non-Resident Indian is an individual who still holds an Indian Passport but has emigrated to another country on a temporary basis. This could either be related to work opportunities, education or residence. Any individual who spends more than 182 days outside the country would fit into the category.
Taxes on your Indian property will only come into the picture if you earn more than INR 2,50,000 in India, excluding any sort of capital gains taxes. There are two major possibilities for earning money from your Indian property. You can either rent it or sell it to earn a profit.
Income from Rent
Any form of rental income exceeding INR 2,50,000 would be taxed like it is for a normal Indian resident.
- The municipal tax is the first one to be deducted from your total rental income.
- From the remaining, amount a standard deduction of 30% is allowed. It can also be used to offset any interest on a home loan that you pay for the property.
- In the event, that you own more than one property but do not use it for residential purposes, you can claim it as self-occupied. In such cases, a notional rent is calculated on the property and taxes are applicable on the other properties.
As the name suggests, this scenario would come into the picture if you sell a property and make some profit out of the transaction. There are two simple variables to such transactions. Firstly, the duration for which you held the property before selling it. And secondly, the cost variance in buying and selling the same.
- If you hold on to a property for less than 2 years and decide to sell, it would come under the purview of short-term capital gains. In such cases, the gain is taxed as per the income tax slabs.
- If you hold on to a property for at least 3 years before selling it, the same would qualify as a long-term capital gain and taxed accordingly. According to the current laws, it would stand at 20% and you would end up paying cess and surcharge on the top of it.
NRIs can also benefit from certain tax exemptions that are in place.
- Section 54
If you buy a property and decide to sell the same after 2 years from the purchase, and reinvest the total amount in buying another property within a span of 2 to 3 years, the profit that you make from the previous transaction is exempted.
- Section 54EC
In the event that you hold on to a property for three years or more, it would qualify as a long-term capital tax. However, the gains on the transaction can be completely exempted if you decide to reinvest the same in bonds issued by NHAI or REC within 6 months of the sale.
These are some of the major tax implications that you need to be aware of, regarding your Indian properties.