A property is also a good
tax saving tool for both residents and non-residents. The benefits for a
non-residential Indian (NRI) are very similar to the tax benefits of a
resident Indian. An NRI is entitled to all tax benefits related to
purchase of property that a resident Indian is. So, you can claim a Rs 1
lakh deduction under 80C.
There are added advantages of buying a house on loan if you are an NRI. Unlike a resident Indian, who can claim a deduction only up to Rs 1.5 lakh for home loan interest, there is no upper limit on this for an NRI. Like residents, other deductions such as stamp duty, registration charges, municipal taxes paid during the year and a flat 30% of the rent (excluding municipal taxes) deduction for maintenance is available to NRIs as well.
NRIs also have to pay a withholding TDS at the rate of 1% if you buy a property worth more than Rs 50 lakh. You'll be exempted from wealth tax if the property is vacant and declared as 'self-occupied'. Else you'll have to rent it out for at least 300 days a year to avoid paying wealth tax. This rule is for the first property only. For subsequent vacant properties, you'll have to pay tax at the rate of 1% of the value (net of outstanding loans) in excess of Rs 30 lakh.
There are added advantages of buying a house on loan if you are an NRI. Unlike a resident Indian, who can claim a deduction only up to Rs 1.5 lakh for home loan interest, there is no upper limit on this for an NRI. Like residents, other deductions such as stamp duty, registration charges, municipal taxes paid during the year and a flat 30% of the rent (excluding municipal taxes) deduction for maintenance is available to NRIs as well.
NRIs also have to pay a withholding TDS at the rate of 1% if you buy a property worth more than Rs 50 lakh. You'll be exempted from wealth tax if the property is vacant and declared as 'self-occupied'. Else you'll have to rent it out for at least 300 days a year to avoid paying wealth tax. This rule is for the first property only. For subsequent vacant properties, you'll have to pay tax at the rate of 1% of the value (net of outstanding loans) in excess of Rs 30 lakh.
"In case any person is interested in more than one house property, then
purchase in the name of parents, a major child or form a HUF to avoid
wealth tax," says Sudhir Kaushik of Taxspanner.com
Vacant properties are considered 'self-occupied' and hence you do not have to pay any tax on them. However, if there is more than one vacant property, you can show only one of them as self-occupied and the rest will be deemed as let-out and added to your taxable income.
Similarly, if you actually rent out the property, the income from it taxable in India and you'll have to file your returns here. You may have to show this income in your country of residence and pay taxes there as well unless you are a resident of a country with which India has a Double Tax Avoidance Agreement (DTAA).
When you decide to sell the property, you'll have to pay capital gains tax as prescribed under the Income Tax Act. You can get long-term capital gains benefits if you hold a property over 36 months.
"If a property is held for 3 years, it is treated as long-term capital gains and taxed at 20%. Short term capital gains (any term shorter than 3 years) are added to income and taxed at the normal rate of tax. There would be a 20% TDS for NRIs on sale of property," Anil Rego of Right Horizons.
Also, you can claim exemption by investing in another property. Capital gains may also be taxable in your country of residence if it doesn't have a DTAA with India.
Vacant properties are considered 'self-occupied' and hence you do not have to pay any tax on them. However, if there is more than one vacant property, you can show only one of them as self-occupied and the rest will be deemed as let-out and added to your taxable income.
Similarly, if you actually rent out the property, the income from it taxable in India and you'll have to file your returns here. You may have to show this income in your country of residence and pay taxes there as well unless you are a resident of a country with which India has a Double Tax Avoidance Agreement (DTAA).
When you decide to sell the property, you'll have to pay capital gains tax as prescribed under the Income Tax Act. You can get long-term capital gains benefits if you hold a property over 36 months.
"If a property is held for 3 years, it is treated as long-term capital gains and taxed at 20%. Short term capital gains (any term shorter than 3 years) are added to income and taxed at the normal rate of tax. There would be a 20% TDS for NRIs on sale of property," Anil Rego of Right Horizons.
Also, you can claim exemption by investing in another property. Capital gains may also be taxable in your country of residence if it doesn't have a DTAA with India.
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