INCOME-TAX PROCEDURE

• Investment in a property in India should not give rise to any income-tax implications for an NRI.
• Income from letting out the property would be taxable under the head ‘Income from House Property’. Typically, the actual rent received being higher than deemed values, would be taxable in India, at regular slab rates [current maximum slab rate is 30.9 percent]. Deductions such as (a) standard deduction of 30 percent of the annual value (i.e., rent received/ receivable); (b) certain interest costs in respect of the property could be claimed by an NRI. Where the property is not let out, mitigating tax levy on deemed rental values could be explored having regard to facts.
• Sale of property could give rise to ‘Capital gains’ implications, which would be taxable as per the provisions of the IT Act. The capital gains and tax thereon would be computed as per the following illustration:

Particulars 

Amount (INR)

Full Value of Consideration
100
Less:
Cost of acquisition
(50)
Cost of improvement
(10)
Expenses incurred in connection with the sale of the property
(05)
Capital gains
35

Capital gains tax:

Long-term capital gains [ie, property held for a period more than 3 years] [10.3 percent]; 3.61 

OR 

Short-term capital gains [Other cases] [as per individual slab rates. The maximum slab rate is currently 30.9 percent] 

14.42 

In connection with the above, it should be noted that the benefit of indexation would not be available. However, NRIs could explore the option of claiming certain specified exemptions (subject to conditions) in respect of capital gains arising from sale of property.