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Tax is withheld at 20% if property seller doesn’t have PAN

This is a new provision, which has been introduced with effect from 1 June 2013

Q. 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?

Expert Comment: 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 cannot, 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.

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