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On Real Estate Consultancy

Do NRI/PIO/OCI have to file return in India for their property rental income and Capital Gains Tax?

Rental income earned is taxable in India, and hence they must obtain a PAN and file return of income if they have rented this property. On sale of the property, the profit on sale shall be subject to 9 capital gains.

How does the Double Taxation Avoidance Agreement work in the context of tax on income and Capital Gains tax paid in India by NRI?

India has DTAAs with several countries which give a favourable tax treatment in respect of certain heads of income. However, in case of sale of immovable property, the DTAA with most countries provide that the capital gains will be taxed in the country where the immovable property is situated. Hence, the non-resident will be subject to tax in India on the capital gains which arise on the sale of immovable property in India. Letting of immovable property in India would be taxed in India under most tax treaties in view of the fact that the property is situated in India.

How does Double Taxation Avoidance Agreement work in the context of CGT paid in India on the foreign tax treatment?

In case the non-resident pays any tax on capital gains arising in India, he would normally be able to obtain a tax credit in respect of the taxes paid in India in the home country, because the income in India would also be included in the country of tax residence. The amount of the tax credit as also the basis of computing the tax credit that can be claimed are specified in the respective country’s DTAA and is also dependent on the laws of the home country where the tax payer is a tax resident.

What are the rules governing the repatriation of the proceeds of sale of immovable properties by NRI/PIO as prescribed by the Reserve Bank of India?

If the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels/by debit to NRE/FCNR(B) account, the amount to be repatriated should not exceed the amount paid for the property:

  • In foreign exchange received through normal banking channel or
  • By debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR(B) account.

If the property was acquired out of Rupee sources, NRI/PIO may remit an amount up to USD one million, per financial year, out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance. The NRI/PIO may use this facility to remit capital gains, where the acquisition of the subject property was made by funds sourced by remittance through normal banking channels/by debit to NRE/FCNR(B) account.

Can a NRI acquire a commercial property in India?

Yes, Under The General Permission Granted By The Reserve Bank, Property Other Than Agricultural Land/Farm House/Plantation Property Can Be Acquired By NRIs Provided The Purchase Consideration Is Met Either Out Of Inward Remittances In Foreign Exchange Through Normal Banking Channels Or Out Of Funds From The Purchaser’s NRE/FCNR Accounts Maintained With Banks In India And A Declaration Is Submitted To The Central Office Of Reserve Bank In Form IPI 7 Within A Period Of 90 Days From The Date Of Purchase Of The Property/Final Payment Of Purchase Consideration.

Does Capital Gains Tax (CGT) apply to NRI?

Yes. Long-Term And Short-Term Capital Gains Are Taxable In The Hands Of Non-Residents.

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