An NRI, or Non-Resident Indian, is an individual who is an Indian citizen but resides abroad due to employment, business, or other reasons, indicating an uncertain duration of stay outside India. Non-resident foreign citizens of Indian origin are treated similarly to NRIs.
A PIO, or Person of Indian Origin, is an individual who is not a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, and who, at any point, held an Indian passport or whose father or grandfather was an Indian citizen by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).
An OCI, or Overseas Citizen of India, can be:
(a) A person of full age and capacity who is a citizen of another country but was a citizen of India at the time of, or after, the commencement of the constitution, or was eligible to become a citizen of India at the time of the constitution's commencement, or belongs to a territory that became part of India after August 15, 1947.
(b) A minor child of a person mentioned in clause (a).
Please note that individuals who are or have been citizens of Pakistan, Bangladesh, or other specified countries are not eligible for OCI registration.
Under the general permission granted by the Reserve Bank of India (RBI), the following categories can freely purchase immovable property in India:
(a) Non-Resident Indian (NRI): Citizens of India residing outside India.
(b) Person of Indian Origin (PIO): Individuals who held an Indian passport at any time or whose father or grandfather was an Indian citizen by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955). This does not include citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, and other specified countries.
The general permission, however, covers only the purchase of residential and commercial property and does not apply to agricultural land, plantation property, or farmhouses in India. OCIs can purchase immovable property in India except for agricultural land, plantation property, or farmhouses.
If you are an NRI/OCI/PIO, you need to file your income tax returns if you meet either of the following conditions:
(a) Your taxable income in India during the year exceeded the basic exemption limit of ₹1.6 lakh OR
(b) You earned short-term or long-term capital gains from the sale of any investments or assets, even if the gains are less than the basic exemption limit.
Yes, there are two exceptions:
(a) If your taxable income consisted solely of investment income (interest) and/or capital gains income, and tax has been deducted at source from such income, you are not required to file tax returns.
(b) If you earned long-term capital gains from the sale of equity shares or equity mutual funds, you are not liable to pay any tax, and therefore, you do not need to include it in your tax return.
Traditionally, NRIs could file their returns by giving power of attorney to someone in India or by sending their forms and documents to a tax expert in India who would file returns on their behalf. Nowadays, the easiest option for NRIs to file their Indian tax returns is by using online platforms. Several online options are available for filing your tax returns.
General permission is not available to NRIs/PIOs for acquiring agricultural land, plantation property, or farmhouse in India. Proposals for such acquisitions will require specific approval from the Reserve Bank of India, and these proposals are considered in consultation with the Government of India.
Authorized dealers or housing finance institutions in India that are approved by the National Housing Bank may provide housing loans to non-resident Indians (NRIs) or persons of Indian origin (PIOs) residing outside India for the acquisition of residential accommodation in India. Here are the conditions for such loans:
(a) The loan terms, including the quantum of loans, margin money, and the repayment period, should be on par with those applicable to housing finance provided to residents in India.
(b) The loan amount should not be credited to the borrower's Non-resident External (NRE)/Foreign Currency Non-resident (FCNR)/Non-resident non-repatriable (NRNR) account.
(c) The loan should be fully secured by equitable mortgage by deposit of title deed of the property to be acquired. If necessary, there should also be a lien on the borrower's other assets in India.
(d) Loan installments, interest, and other charges, if any, should be paid by the borrower through remittances from outside India through normal banking channels. Alternatively, these payments can be made from the borrower's Non-resident External (NRE)/Foreign Currency Non-resident (FCNR)/Non-resident Non-repatriable (NRNR)/Non-resident Ordinary (NRO)/non-resident Special Rupee (NRSR) account in India or from rental income derived from renting out the acquired property using the loan. Payments can also be made by any relative of the borrower in India by crediting the borrower's loan account through the bank account of such relative (the term 'relative' is defined as per section 6 of the Companies Act, 1956).
(a) If the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels/by debit to NRE/FCNR(B) account, the amount to be repatriated should not exceed the amount paid for the property:
(i) In foreign exchange received through normal banking channel or (ii) By debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR(B) account.
Repatriation of sale proceeds of residential property purchased by NRI’s/PIO’s out of foreign exchange is restricted to not more than two such properties. Capital gains, if any, may be credited to the NRO account from where the NRI’s/PIO’s may repatriate an account up to USD one million, per financial year, as discussed below.
(b) If the property was acquired out of Rupee sources, NRI/PIO may remit an amount up to USD one million, per financial year, out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance. The NRI/PIO may use this facility to remit capital gains, where the acquisition of the subject property was made by funds sourced by remittance through normal banking channels/by debit to NRE/FCNR(B) account.
The rental income, being a current account transaction, is repatriable, subject to the appropriate deduction of tax and the certification thereof by a Chartered Accountant in practice. Repatriation of sale proceeds is subject to certain conditions. The amount of repatriation cannot exceed the amount paid for acquisition of the immovable property in foreign exchange.
India has DTAA’s with several countries which give a favorable tax treatment in respect of certain heads of income. However, in case of sale of immovable property, the DTAA with most countries provide that the capital gains will be taxed in the country where the immovable property is situated. Hence, the non-resident will be subject to tax in India on the capital gains which arise on the sale of immovable property in India. Letting of immovable property in India would be taxed in India under most tax treaties in view of the fact that the property is situated in India.
Yes. Long-term and short-term capital gains are taxable in the hands of non-residents.
Type of asset: Assets like house property, land and building, jewellery, development rights etc.
Rate of tax deduction at source (TDS)
Long term – 20.6%
Short term – 30.9%
Exemption available (only for long term capital gains)
The long term capital gains arising on sale of a residential house can be invested in buying/ constructing another residential house, within the prescribed time. The exemption is restricted to the amount of capital gains or amount invested in new residential house, whichever is lower. If the amount of capital gains is invested in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation, then the entire capital gains is exempted, else the proportionate gain is exempted. As per the financial budget 2007-08, a cap of Rs. 50 lakhs has been imposed on investment that can be made in capital tax saving bonds.
The mere acquisition of property does not attract income tax. However, any income accruing from the ownership of it, in the form of rent (if it is let out)/annual value of the house (if is not let out and it is not the only residential property owned by that person in India) and/or capital gains (short term or long term) arising on the sale of this house or part thereof is taxable in the hands of the owner.
The Government of India has granted general permission for NRI/PIO/OCI to buy property in India and they do not have to pay any taxes even while acquiring property in India. However, taxes have to be paid if they are selling this property. Rental income earned is taxable in India, and they will have to obtain a PAN and file return of income if they have rented this property. On sale of the property, the profit on sale shall be subject to 9 capital gains. If they have held the property for less than or equal to 3 years after taking actual possession then the gains would be short term capital gains, which are to be included in their total income as tax as per the normal slab rates shall be payable and if the property has been held for more then 3 years then the resultant gain would be long term capital gains subject to 20% tax plus applicable cess.
In case the non-resident pays any tax on capital gains arising in India, he would normally be able to obtain a tax credit in respect of the taxes paid in India in the home country, because the income in India would also be included in the country of tax residence. The amount of the tax credit as also the basis of computing the tax credit that can be claimed are specified in the respective country’s DTAA and is also dependent on the laws of the home country where the tax payer is a tax resident.
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