For property bought as a resident or inherited, up to $ 1mn can be sent each year
Non-resident Indians (NRIs) who rent or sell real estate in India should understand the rules that govern the taxation of rental income and capital gains.
In most cases, the rules are similar to those that apply to resident Indians, but there are a few exceptions & hence computed differently:
Tax on rental income
When a taxpayer (resident or NRI) owns more than two houses, any two chosen by her will be deemed to be self-occupied, assuming they are not rented out. No income tax is payable on those two self-occupied properties.
If the taxpayer has more than two houses that are not rented out, the rest will be deemed to be rented out.
Income from deemed to be let-out property is computed in a similar manner as in the case of let-out property. If actual rent is received, it will be taxable on an accrual basis subject to the calculation of gross annual value prescribed in the income tax law.
Taxation of capital gains
Both resident Indians and NRIs are taxed similarly on capital gains from the sale of residential property.
The rate depends on the holding period.
The gains are treated as long-term if the NRI held the property for more than two years.
If not, the gain is treated as short-term.
Under Section 112, long-term capital gains are taxed at the rate of 20 percent after indexation.
Short-term capital gains are taxed at the slab rate applicable to the NRI taxpayer.
Tax Deducted at Source (TDS)
When an NRI sells a property after two years, the buyer must deduct TDS at the rate of 20 percent. If it is sold before two years, a TDS rate of 30 percent becomes applicable.
In case the NRI´s total income is below the taxable limit, and he is claiming exemption on capital gain, he may submit a low or nil TDS deduction certificate to the buyer so that no TDS is deducted and he is saved from the hassle of claiming a refund. An NRI can avail of tax exemption on capital gains by investing this amount.
Tax relief on borrowed funds
If an NRI borrows money to acquire or construct a house, he must complete the acquisition or construction within five years from the end of the financial year in which the loan was taken to get the benefit of tax deduction.
The interest portion of the loan is eligible for deduction under Section 24 subject to a maximum of ₹ 2 lakh in the case of a self-occupied property.
The principal portion is eligible for deduction under Section 80C.
Section 24(b) does not restrict interest deduction in case of loans taken from foreign banks.
But Section 80C benefit is available only on loans taken from Indian banks and housing finance companies.
Rules for remitting money
NRIs must comply with FEMA (Foreign Exchange Management Act) regulations while remitting money from India.
NRIs can repatriate the proceeds from the sale of residential property in India, provided they meet a few conditions.
The immovable property should have been acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition.
The payment should have been made in foreign exchange received through banking channels or out of funds held in FCNR(B) account or NRE ( non-resident external) account.
And not more than two such properties qualify. If the property was acquired by the nonresident when he was resident in India or was inherited from a resident Indian, then the sale proceeds can be repatriated up to $ 1 million per financial year.