• Sagar Rathi

Tax benefits and Subsidies for NRIs

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When it comes to taxation in India, the government seeks taxes on almost all the earnings made in India by resident Indian as well as from overseas Indian. However, just like resident Indian, these NRIs/PIOs are also eligible for various tax benefits and subsidies while purchasing a residential or commercial property in India.

An NRI refers to an Indian Citizen who resides in India for less than 182 days during the course of the preceding financial year, a citizen who has gone/stays outside India for the purpose of employment, for carrying on business or vocation, or for any other purpose indicating his intention to stay outside India for an uncertain period. On the contrary, a PIO is a citizen of a foreign country (except Bangladesh or Pakistan) who has held an Indian passport at any time, or had Indian parents or grandparents, or has a spouse who is a citizen of India.

What are the taxation laws for NRIs/PIOs? According to Indian law, any individual whose income exceeds a specific slab (as per the taxation brackets existent during that financial year), irrespective of their citizenship status, are required to file an income tax return in the country. As the NRIs/PIOs are allowed to buy residential and commercial property in India, any earning they made on these properties is subject to Indian taxation. This includes property rentals and capital gains on investments in a property (along with components of income, made through investment in shares, mutual funds and term deposits) which exceeds the basic exemption limit.

Tax benefits to NRIs  While NRIs are required to pay taxes on their rental yield and capital gains, there are many provisions under the IT Act which provide these offshore Indians with taxation benefits, as well as various subsidies including PMAY. 

Listed below are the tax benefits which can be availed by NRIs:

  • In the case of a home loan, an NRI can claim a standard deduction of 30%, deduct property taxes and use interest deduction

  • If an NRI’s only annual income in India is the income from investment in Indian assets where TDS has already been deducted, the NRI is not required to file an IT return. The exemption needs to be claimed under Section 54, 54F and 54EC (unlike the short-term capital gains)

  • Also allowed a deduction for principal repayment, and claim on stamp duty and registration charges (paid on purchase of a property) under section 80C

  • Exemption is available if capital gains from the sale of the first property is reinvested into specific bonds

  • Deduction are only allowed in the following cases:

  • Allowed for insurance policy only if the policy is in the NRI’s (or his/her family’s) name, with premium less than 10% of sum assured

  • Included for interest paid on tuition fee and educational loan for a full time education course in any school, college or university in India

  • Can also be claimed on donations which have been made for any charitable cause

  • For investment in Equity Linked Savings Scheme (ELSS) from mutual funds on amounts up to Rs 1.5 lakh

  • On interest earned on Govt. issued bonds and savings certificates

  • Available for the premium which has been paid for an health insurance, amounting up to INR 50,000 for senior citizens/INR 25,000 for the insurance of self, spouse, and dependent children

Other benefits in the form of subsidies Apart from tax relief, NRIs are also eligible for various taxation reliefs from the government and can avail Pradhan Mantri Awas Yojana (PMAY) related subsidies on buying an affordable house. While the NRI buyers are eligible for a subsidy under PMAY only if they fulfill the following requirements:

  • The annual family income is less than INR 18 lakh

  • The applicant or a direct family member has not already availed the PMAY scheme

  • The applicant or a direct family member does not own a home anywhere in India

Any NRI who meets all the criteria listed above can choose a bank associated with PMAY, and submit a ‘subsidy claim form’ to the Housing and Urban Development Corp (HUDCO) or National Housing Bank (NHB) after the completion of all the formalities with the bank. HUDCO and NHB will generally check their database for the NRI status, income level, and check whether the applicant (or direct family member) does not own a house in India. Upon the successful completion of the scrutiny, the housing loan for the property will be sanctioned.

To read more about Pradhan Mantri Awas Yojana (Urban) - PMAY (U), click here.

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