India: Taxes and Costs

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Rental income tax is low to high in India

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	8.1%	19.3%	21.1%
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Income Tax

Non-residents earning rental income are taxed at progressive rates. In case of co-ownership, both parties are taxable separately.

Taxable income is computed on the basis of the actual rental value of the property, or the government-determined rental value, whichever is higher. A standard deduction of 30% is granted for repairs and collection charges. Interest payments relating to loans used for the construction, acquisition, and repairs of the property are also entirely deductible.

The income is then taxed at the following tax rates for tax year ending March 31, 2006:

A 10% surcharge on the tax liability is levied on income greater than INR1 million (US$21,538).

Education Cess

An education cess of 2% is levied on the total income tax liability.

Wealth Tax

If the taxable value of the net wealth is more than INR1.5 million (US$32,307), a wealth tax of 1% of the net wealth is imposed. Net wealth is computed by deducting debts relating to the properties against their aggregate value. The income tax authorities are responsible for assessing the value of the wealth. Self assessment is also possible but there are interests and penalties for defaults.

Property Tax

There is no comprehensive system of property taxation. Not only does it differ among the states, but it also varies between the municipalities within the states. For leased properties, property tax is levied on the annual rental value of the property.

Delhi - 6% - 10%

Capital Gains Tax

Income derived from selling property is taxed under Capital Gains Tax. In determining capital gains tax liability, the law distinguishes between short-term capital gains (properties held for less than three years) and long-term capital gains (more than three years).

Short-term capital gains are considered ordinary income and taxed at the standard progressive rates. Long-term capital gains are taxed at a flat rate of 20% with a surcharge of 2%, making the effective tax rate at 20.4%.

The taxable capital gains are computed by deducting from the selling price the acquisition cost or the property’s estimated market value, costs of improvements and transfer costs. For long-term capital gains, the deductions are adjusted for inflation following the changes in the Cost Inflation Index during the property’s holding period.

To be exempted from capital gains tax, NRIs are given six months to reinvest the acquired funds from selling property to another residential property, although the general rule is within two years after the transaction or one year before.

Important note: NRIs can only repatriate their funds after three years from the date of acquisition, and only if the original property was purchased with foreign currency. This is only allowed for a maximum of two properties. But if the property was purchased in Indian Rupees, the money cannot leave the country.

India - more data and information

• Guide to buying houses and registering property sales in India

Your Comments

posted by Kuljeet Dobe | 2008-03-25

Barrister, 196 Windsor Rd, Maidenhead, SL6 2DW

posted by jidesh kumar | 2008-04-06

lawyer, new delhi

posted by Sanjay | 2008-05-06

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