For years now, NRIs have been opting to own a property in India. They are always on the lookout for buying residential property in India because they know that they have to eventually return to India. Some NRIs receive a property in India as a gift or inherit it from their parents/relatives in India. However, there are a set of rules and regulations an NRI should comply with if he has acquired a property as gift in India. An NRI should remember that the tax and regulatory implications for a gifted property are different from those for an inherited property.
Can an NRI be gifted with a property in India? What are the property types?
As per Section 122 of the Transfer of Property Act, 1822- ‘the transfer of a certain existing immovable property made voluntarily and without consideration, by one person called the “donor”, to another, called the “donee” and accepted by and on behalf of the donee’ is justified as property gifting. An NRI/PIO can acquire a property in India by way of gift from either a resident Indian or another NRI/PIO. Nevertheless, the NRI can acquire only a commercial or a residential property and not a plantation land, an agricultural land or a farm house. Similarly, a foreign national also cannot acquire a property by way of gift in India.
Will an NRI be liable to pay tax on the gifted property in India?
Whether or not an NRI will be liable to pay tax on gifted property will depend on a couple of factors. If an NRI receives a property, worth Rs.30 lakh or less, as a gift from his family, relatives, spouse or siblings, he will not have to pay tax. This rule also applies if an NRI has been gifted with a property from any lineal ascendant or descendant. The gifted property will also be exempted from tax if it is received on the occasion of marriage or from a registered trust. On the other hand, a gifted property that is valued more than Rs. 50,000 and is gifted by non-relatives will be taxed under the income of the person receiving the gift. Therefore, the receiver should add the fair market value of the received gift to his total income and calculate his tax.
On the other hand, as per the Wealth Tax Act, the property will be subject to wealth tax if the net value (consisting of the market value minus the loan sought to buy the property) of the person’s assets is more than 30 lakh. The term ‘assets’ in such a situation will be seen in a different aspect:
- In case of a single property :
If an NRI possesses just one residential property in India, he will not be entitled to pay wealth tax. However, if the NRI owns more than one property in India, he will be entitled to pay wealth tax on the value of his assets exceeding Rs. 30 Lakh.
- In case if the property is rented out for more than 300 days:
If the NRI has rented out his property for more than 300 days in a financial year, he will be exempted from wealth tax. Although he will be liable to pay income tax on the rental income earned.
Provisions for clubbing of income
Even in case of gifted property, clubbing provisions similar to income tax apply and need to be evaluated in case of gift to spouse and/or son’s wife. In such a case, property would continue to belong to the donor for the purpose of wealth tax applicability. This means if an Indian gifts his property in India to his wife or his son’s wife staying in another country, the rent generated from the gifted property will eventually be added to the total income of the person giving the gift.
What are the repatriation rules and tax implications for the sale of a gifted property?
When an NRI sells away his gifted property in India, he should credit the sale proceeds to an NRO account only. However, the NRI can remit up to USD 1 million from the balance in the NRO account each year, subject to the satisfaction of authorized dealers and the payment of the applicable taxes.
The tax implications on the sale of property received as gift are the same as those in case of sale of purchased property. In this case though, the purchase price for calculation of capital gains will be the purchase price paid by the person who gifted the property and the holding period for determining if the gains are long term or short term will be computed from the date of purchase by the person who gifted the property.
Can an NRI gift property?
Yes, an NRI/PIO can gift a property in India to a resident Indian or another NRI/PIO. But agricultural land, plantation land and a farm house can be gifted only to a resident Indian and not another NRI/PIO.