Mumbai, a bustling metropolis and financial hub of India, presents a myriad of opportunities for Non-Resident Indians (NRIs) looking to invest in real estate. Understanding the tax implications is crucial as they mirror those of resident buyers but come with additional compliance requirements under the Income Tax Act and the Foreign Exchange Management Act (FEMA). Key charges include stamp duty (ranging from 5% to 7% depending on the state), registration fees (approximately 1%), and various Tax Deducted at Source (TDS) obligations that differ based on the residency status of the seller, as pointed out by experts in the field.
When purchasing from a resident seller, NRIs must deduct 1% TDS under Section 194IA of the Income Tax Act if the property value exceeds ₹50 lakh. It is essential to file Form 26QB and issue Form 16B to the seller, with the Permanent Account Number (PAN) being sufficient for compliance—no Tax Deduction Account Number (TAN) is needed. Conversely, if the seller is a non-resident, the TDS rate escalates to 20% or 30% depending on whether the seller possesses a PAN and the nature of the asset, as highlighted by tax professionals.
In addition to understanding TDS rates, NRIs should be aware that all payments must be channeled through Indian banking systems. This ensures a transparent audit trail and compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) norms. Funds can be transferred from the NRI's NRE, NRO, or FCNR accounts, with repatriable purchases permitted through NRE/FCNR accounts or via inward remittances. NRO funds can be used for non-repatriable purchases, emphasizing the need for NRIs to carefully plan their financial strategies to align with their investment goals.
Lastly, NRIs should consult with tax advisors to navigate the complexities of deductions, which are only applicable against taxable income in India. Those without any Indian income, such as rental or capital gains, might not benefit from these deductions. Understanding these intricacies will empower NRIs to make informed decisions and maximize their investment potential in India's real estate market. Engaging with local property experts can further streamline the process, ensuring compliance and enhancing the overall investment experience.
