Guide to Property Taxes in India

Non-resident individuals are generally subject to Indian income tax on income received in India or arising, accruing, or deemed to arise or accrue in India, including income derived from Indian real estate. Married individuals are generally assessed separately.

India's tax year runs from 1 April to 31 March of the following year.

Income Tax

Under the default new tax regime, individual income is subject to progressive rates as follows:

The highest possible surcharge is 25% for people earning more than Rs 5 crore (1 crore = 10,000,000).

Education Cess

An education cess of 4% is levied on the total income tax liability.

Rental Income Tax

Rental income derived by a non-resident individual from Indian real estate is generally taxable under the category “Income from House Property” and subject to the individual's applicable progressive income tax rates.

For a let property, the taxable amount is broadly determined from its annual value, after taking into account eligible municipal taxes. A standard deduction equal to 30% of the net annual value is then available. This statutory deduction applies irrespective of the landlord's actual expenditure on repairs and maintenance.

Interest payable on qualifying borrowed capital used for the acquisition, construction, repair, renewal or reconstruction of a let property may also be deductible, subject to the applicable tax rules.

Consequently, before considering financing costs and other adjustments, approximately 70% of the property's net annual value is generally subject to the applicable progressive income tax rates.

For comparison purposes above for three income levels, the calculations assume that the non-resident individual has no other taxable income in India and applies the standard 30% deduction available for income from house property. Accordingly, approximately 70% of gross rental income is subject to India's progressive individual income tax rates. The calculations also include the applicable income-tax surcharge at higher income levels and the 4% Health and Education Cess.

Capital Gains Tax

Capital gains arising from the disposal of Indian real estate by a non-resident individual are taxable in India.

Immovable property is generally treated as a long-term capital asset when held for more than 24 months. This replaces the older three-year holding-period rule.

For transfers occurring under the current regime, qualifying long-term capital gains on real estate are generally subject to a 12.5% tax rate without indexation, subject to the specific rules, exemptions and transitional provisions applicable to the taxpayer and property.

Where the property has been held for 24 months or less, the gain is generally treated as a short-term capital gain and included in the taxpayer's taxable income, where it is subject to the applicable normal income tax rates.

The taxable capital gain is broadly calculated by deducting the allowable acquisition cost and qualifying transfer-related expenditure from the sale consideration, subject to India's capital-gains valuation rules.

Sales by non-residents are also subject to tax withholding requirements. The withholding should not be described as a simple 10% rate for short-term gains and 20% for long-term gains in all cases, as the applicable TDS treatment depends on the current non-resident withholding provisions and the nature of the taxable gain.

Corporate Tax

India does not have a single corporate income tax rate applicable to all companies.

Domestic companies under the ordinary corporate tax regime are generally subject to a basic rate of 25% or 30%, depending on factors including turnover and eligibility.

Eligible domestic companies may elect to apply a concessional corporate income tax rate of 22%, subject to specified conditions and restrictions on certain deductions and incentives. After the applicable 10% surcharge and 4% Health and Education Cess, this produces an effective tax rate of approximately 25.17%.

Certain qualifying new domestic manufacturing companies may be eligible for a 15% concessional basic corporate tax rate, subject to statutory conditions.

Foreign companies with an Indian permanent establishment are generally subject to a 35% basic corporate income tax rate, plus the applicable surcharge and 4% Health and Education Cess.

Rental income and taxable capital gains derived by companies from Indian real estate are generally included in the company's taxable income, subject to the applicable corporate and capital-gains provisions.

Buying and Selling Taxes and Costs

Property Holding Tax

India does not impose a uniform nationwide annual property tax. Instead, property tax is generally levied by municipal corporations and other local authorities, meaning that the calculation method and tax burden vary significantly depending on the property's location.

Municipalities may calculate property tax using different valuation systems, including:

• Annual or rateable value, based broadly on the property's estimated rental value;

• Capital value, based on the assessed value of the property; or

• Unit-area value, under which a standardized value is assigned according to factors such as location, property type, use, age and floor area.

For leased residential properties in municipalities that use a rental-value system, the property's annual or rateable rental value may form the basis of the property tax calculation. Other municipalities instead apply capital-value or unit-area methods.

Municipal Charges

Property owners may also be subject to additional municipal charges associated with local services, including waste management, sanitation, water supply, drainage and other municipal services. The nature and amount of these charges depend on the relevant local authority and should be distinguished from the underlying property tax.