Effective Tax Rate on Rental Income
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Grant Thornton India
Nonresidents are taxed only on their Indian-sourced income. Married couples are assessed and taxed separately.
The tax year in India is from 01 April of the current year until 31 March of the succeeding year. The tax year 2018-2019 is from 01 April 2018 to 31 March 2019. The tax year 2019-2020 is from 01 April 2019 to 31 March 2020.
Income is taxed at progressive rates.
|TAXABLE INCOME, INR (US$)||TAX RATE|
|Up to 250,000 (US$3,577)||0%|
|250,000 - 500,000 (US$7,353)||10% on band over US$3,577|
|500,000 - 1 million (US$14,706)||20% on band over US$7,353|
|Over 1 million (US$15,873)||30% on all income over US$14,706|
|Source: Global Property Guide|
A surcharge of 10% of the total tax liability is applicable where the total income exceeds INR10 million (US$147,059).
An education cess of 3% is levied on the total income tax liability.
Nonresidents earning rental income are taxed at progressive rates. In case of co-ownership, both parties are taxable separately.
Income earned from leasing land, buildings, and furniture is subject to a non-final 15% withholding tax, levied on the gross rent. This tax is credited against the taxpayer´s total income tax liability.
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.
Capital gains realized from selling real property are taxed at the standard income tax rates. Taxable capital gains are computed by deducting acquisition costs and incidental expenses from the gross sales proceeds.
Capital gains realized from real property are subject to non-final withholding taxes, levied on the gross sales proceeds. Short-term capital gains are subject to 10% withholding tax while long-term capital gains (holding period exceeds three years) are subject to 20% withholding tax. This tax is credited against the taxpayer´s total income tax liability.
Net wealth tax is levied at 1% on a taxpayer´s net assets if it exceeds INR3 million (US$44,118). Net assets are computed by deducting debts relating to the properties against their aggregate value. The income tax authorities are generally responsible for assessing the property value. Self assessment is also possible but there are interests and penalties for defaults.
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. In Delhi, property taxes range from 6% to 10%.