Although the world real estate business is in a declining state, it has a favorable trend in India because of the devaluation of rupees against dollar. The investment made today on real estate will have higher appreciation in the years to come. NRIs should take advantage of this present and future trend of real estate. A Non-Resident Indian (NRI) may have two objectives for investing on real estate; either for residential purpose or for reselling for making money. The following tax ideas should be kept in mind while investing in real estate:
1. For self-occupied house property, interest paid on loan will be deductible for Indian Income of the NRI, to a maximum limit of Rs 1, 50,000.
2. If let out on rent, deduction is available from the rental received, in respect of actual payment of house tax and a special discount of 30% towards repairs, maintenance and collection charges of the property.
3. Interest paid on loan for purchase of property given rent is fully deductible from the rental income, without any upper limit.
4. If the commercial or residential property is sold within three years, it gives rise to Short-Term Capital Gains and is taxable as resident individual while being added to other income of the NRI. If sold after three years, it is considered as Long-Term Capital Gain and is eligible for a number of benefits. Firstly, it becomes eligible for indexation benefit in which the cost of the house is multiplied by the cost inflation index of the year of sale and is divided by the cost of inflation index for the year of purchase. Consequently, the cost of the house is increased for computation of capital gains that in turn lowers the long-term capital gains. Secondly, the maximum income tax payable on Long-term Capital Gain is 20%. Thirdly, the Capital Gains so saved can be invested on new property
5. NRI should file Income-tax return in India in respect of his/her rental income, particularly if it exceeds the basic exemption limit. If the rental income is of substantial amount, advance tax should be paid. The last date for filing the Income Tax return is 31st July, each year.
6. NRI senior citizens can take advantage of Reverse Mortgage. In this case, the amount of loan taken from bank is not added as income of the NRI.
7. NRIs should check the implication of Income Tax in their respective countries of residence.