INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
of property taxes, except for properties used for chari - table purposes/religious institutions. 8.4 Income Tax Withholding for Foreign Investors Tax consequences in India follow the residential status of the income-earning person, determined for every tax period. An Indian citizen having India-sourced taxable income exceeding INR1.5 million during the tax year will be deemed to be India-resident if they are not liable to tax in any other country by reason of domicile/residence/ other similar criteria. A company is regarded as non-India-resident if it is a foreign company incorporated outside India and its place of effective management is not in India. Any income of a non-resident from property situated in India is subject to tax in India, and withholding tax applies. A foreign company’s income is usually taxed at 35% (plus applicable surcharge and cess). However, gains on the sale of real estate held as an investment are taxed at 12.5% (plus applicable surcharge and cess) or 35% (plus applicable surcharge and cess), depend - ing on the period of holding. Where payment of con - sideration is for purchase of property from a person resident in India, such payment is also subject to with - holding tax at 1%, subject to certain thresholds. Where the property value for the purpose of the pay - ment of stamp duty per local laws exceeds 110% of the consideration received on its transfer (whether capital asset or business asset), the value of the prop - erty for payment of stamp duty is deemed considera - tion received for levy of income tax. Similarly, where consideration paid for the acquisition of immovable property is less than 90% of the property value for payment of stamp duty per local laws, the difference
between the value of the property for payment of stamp duty and consideration discharged is taxed as income of the purchaser, at applicable rates. Tax on non-resident taxpayers may, however, be reduced if favourable tax treaty provisions apply. Taxation of rental property has been covered above. Rental income also qualifies for the following deduc - tions/rebates: • deduction of 30% of rental income (allowance towards repairs and maintenance); • property taxes paid to the local authority; and • interest paid on loans used to purchase the prop - erty. However, set-off of loss arising from interest paid in excess of rental income is subject to certain limita - tions. Structured Real Estate Transactions Gains (long-term) arising on the sale of shares of an Indian company are generally taxable at 12.5% (plus applicable surcharge and cess) where the seller is a non-resident or foreign company. Indian tax laws require transfer of shares to take place at a fair market value calculated in a prescribed man - ner. It is mandatory for parties entering into a purchase or sale of immovable property to obtain and quote their Permanent Account Number allotted by the Indian tax authorities on the conveyance document. 8.5 Tax Benefits Depreciation/other business expenses may be claimed as deductions only if the taxpayer is in the business of commercially letting out properties, or where plant and machinery, inseparable from the property, are let out with the property.
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