Queries on real estate and taxation

I am a non-resident Indian (NRI) based in France and want to invest in a residential property in Kochi. Can I take a home loan from an Indian lender for the same? Will I get any tax benefit here or in India on the transaction?

—K. Simon

Under the exchange control law, an NRI is permitted to purchase immovable property in India other than agricultural land or plantation property or farm house. An NRI is a person resident outside India, who is a citizen of India or is a person of Indian origin. Please note that determination of residential status under the exchange control law is different from income-tax law.

Under the exchange control law, the payment of purchase price for the residential property in India, should be made out of following channels:

(i) funds received in India through normal banking channels by way of inward remittance from any place outside India, or

(ii) funds held in any non-resident account—non-resident external (NRE), non-resident ordinary (NRO) or foreign currency non-resident (FCNR) accounts.

NRIs are allowed to take a home loan in India for purchase of a residential property in India. NRI home loans are offered both by banks and non-banking financial companies. Such loans can be repaid either by adjusting the deposits or through inward remittances from outside India through banking channels or out of balances held in the NRO account of the NRI.

Please note when a person resident in India leaves India for a country for taking up employment or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period, his existing savings account is designated as an NRO account.

Under the income-tax law, the interest on loan taken for purchase, construction or repair of a residential property in India is allowed as a tax deduction while computing the income from the property for the relevant financial year.

The limit for such deduction is Rs.2 lakh for a self-occupied property. However, in case of let-out property, interest payable on housing loan is deductible from rental income without any limit.

Additionally, the repayment of principal amount against housing loan is eligible for tax deduction from the gross total income (the maximum deduction that can be claimed for repayment of loan is Rs1.5 lakh).

I am a person of Indian origin (PIO) in the US. Can I buy agricultural land for my brother based in India? What will be the tax implications?

—Arundhati Nair

There is no income tax implication on purchase of immovable property. However, under the exchange control law, an NRI is permitted to purchase immovable property in India other than agricultural land or plantation property or farm house. However, possibility of seeking a specific approval from the Reserve Bank of India (RBI) to purchase agricultural land may be explored. Your brother who stays in India and is a resident in India may buy the agricultural land in his name from his own funds or from the funds gifted by you.

I want to buy a house for my parents who live in India. I’m an NRI from the UK. Will there be any tax implication on them due to this?

—Ravi Taneja

There is no gift tax in India. However, income tax is payable on any sum of money, movable property or immovable property received by an individual without consideration (i.e., without a quid pro quo), except gifts received from a relative. The term ‘relative’ includes:

(i) Spouse

(ii) Brother or sister

(iii) Brother or sister of the spouse

(iv) Brother or sister of either of the parents

(v) Any lineal ascendant or descendant

(vi) Any lineal ascendant or descendant of the spouse

(vii) Spouse of the person referred to in clauses (ii) to (vi)

Therefore, a gift of house property situated in India to your parents will not be subject to tax in India.

Any income from such property or any gains on the sale of such property in India will be taxable in the hands of the legal owner.

Author: Sonu Iyer is tax partner and people advisory services leader, EY India.

Credits Live Mint


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