This is a new
provision, which has been introduced with effect from 1 June 2013
Reply by
Ms. Saroj Maniar, CA
Question:
I am residing in
Singapore and I plan on purchasing a commercial property in India. Can a
non-resident Indian (NRI) purchase commercial property in India?
I will be taking a
loan for this. Will the interest on this loan be tax deductible?
I am planning to pay
off the monthly interest with the rent that I will get from the commercial
establishment. Is there a better way to get tax cuts?
— Ms. Gayatri
Answer:
 |
| Saroj Maniar, CA. |
As an NRI, you can
acquire any immovable property in India, other than agricultural land, plantation
property or farm house, under the general permission of the Reserve Bank of
India. The property can be acquired from funds lying either in the non-resident
ordinary (NRO) or non-resident external (NRE) accounts or through foreign
inward remittance through normal banking channels.
You can not, however,
pay for the property using travellers’ cheques and/or foreign currency notes or
any other mode.
The income that is
earned from letting out property (whether residential or commercial) is taxable
as ‘income from house property’ as per the domestic tax laws.
While computing the
income from property, you are entitled to a deduction of taxes levied by the
local authority paid during the year and a further deduction of 30 % on the
balance.
Further, if you let
out the property, you can get deduction on the entire amount paid as interest
on the loan that you plan to take to acquire the property.
Since you are an NRI,
under the domestic tax laws, the lessor of the property is liable to withhold
tax at source at 30 % plus the applicable surcharge and cess.
However, your tax
liability would be lower in view of the threshold exemption, lower slab rates
of tax and deduction of interest. In that case, you will need to file your
return of income and claim the refund. Alternatively, you can file an
application with your assessing officer for granting you a certificate for nil
or / lower deduction of tax at source.
If the property is
acquired for Rs.50 lakh or more from a resident Indian, you will need to
withhold tax at source at 1 % from the payment made to the seller and deposit
it to the credit of the government on behalf of the seller.
If the seller does
not have a Permanent Account Number (PAN), 20 % tax has to be withheld. This is
a new provision, which has been introduced with effect from 1 June, 2013.
About Saroj Maniar..
An experienced Chartered Accountant, a rank holder in the Final Company Secretarial examination, she has been in practice for over 20 years.
Mrs. Maniar’s area of specialisation is in the area of direct taxes representation and advisory. She has been actively involved in various professional activities conducted by the BCAS, and is a member of the Taxation Committee of BCAS.
She has also been the Treasurer of Bombay International School. She has delivered talks on various professional subjects and has also contributed articles to The Economic Times, The Times of India and to Outlook Money.
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