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NRI Investments in India – Things to know about Tax Implications

Would you believe it, if we said that there was a whopping 300 million USD increase in investment witnessed in the Real Estate Sector and this investment was wholly generated by the NRI’s in the last year, and the profit sums up to $13.1 Billion in FY 21?

Well, the numbers speak for themselves:

As per The Economic Times, in FY 2021 NRIs have invested $13.1 billion in the Indian real estate market and it is expected to rise to $14.9 billion in FY22

Wondering what made this sector stand out from others, amidst the pandemic?

The answer is simple, it’s the “Value” and “Consistency” it holds. India has always been a land of investment and real estate has made its mark on this land for ages. The real estate market provides a high appreciation & resale value that acts as an USP in this case. If you sell a home in a prominent location, you will almost certainly make a substantial profit.

The value the land holds is supported by surrounding facilities available, that are simply magnificent in the growing & fast developing cities in India. Factors such as developing industries, key locations, unique culture & diversity, and excellent, fast developing infrastructure proves that investing in India is like investing in a golden goose.

And that’s why as an NRI, this would be the ideal time to put your investment right on spot and make the best out of it. Don’t forget that you can also take back a good return on investment while making a smaller initial capital commitment.

The government is aware of the capital that comes along with real estate, so they have also expanded the Tax policies to provide a better experience and make it lucrative for the NRI’s to invest back home in India.

Here are key things you need to know about Tax Implications:

Income Tax Act of 1961 (Indian tax law):

As an NRI, you can have various sources of income. This Act, is in accordance to your income & whereby it states that there are certain rules for taxing an NRI based on two sources of income in the real estate industry:

  1. Revenue from property transfer
  2. Income from property rental

Based on these two rules you will be taxed, depending on the type of investment you make.

Double Taxation Avoidance Agreement:

This law can be a nifty tool and can save up handsomely if used right and works best for NRI’s who earn outside of India. When you make a living out of another county, you will be taxed for the money you earn and generate there & when you buy or hold ownership of a property in your motherland, you are again taxed a certain percentage for that property, hence double taxation.

This is where the DTAA plays a role. As per this law you won’t be taxed for the property or ownership you hold in India, in that country. This has been made possible because of an agreement made between many nations proactively.

Indexing on sale:

There are certain things that are constant when it comes to property investment. It always increases in value, and it is always indexed after years of initial purchase.

Imagine, if X bought a property in 2015 for 1L and sold it for 5L in 2021, technically the understanding is the property has generated a profit of 4L over years and X is required to pay tax for the 4L.

But when the Govt. implements the indexed value on the property, the game changes.

If the Govt. indexed value for the property has gone up to 4L, over the same period then you need to pay tax for the difference of 1L of the 5L only.

5L (Your selling price) – 4L (Govt. fixed price) = 1L Indexed amount to be taxed

You just need to pay the difference between your profit and Govt. fixed value. This saves copiously…doesn’t it?

To conclude:

Always keep an eye on your taxes as an NRI to check if you have been paying double taxes accidentally or not. As NRIs, you should be aware of the tax consequences, you should also be aware of the foreign exchange restrictions that apply to residential property purchases in India.

With the government and the real estate sector working together to make your investment attractive, you can hit a home run by making use of this chance and become one of the many who have benefited from their investments in India.

With all that said, if you are exploring to invest in a residential property, then don’t miss out on visiting SPR City, Chennai’s Largest Integrated Township, coming up in the heart of the city, in Perambur, 2 kms from Kilpauk. There are several residential options from 2/3/4 BHK apartments to 3/4/5 duplex homes & bungalows. SPR City – A place you can call home with more than 75+ joyous amenities.

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