INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Megha Arora, JSA
and its place of effective management is not in India. Any income of a non-resident from property situ - ated in India is subject to tax in India, and with - holding tax applies. A foreign company’s income is usually taxed at 40% (plus applicable surcharge and cess). However, gains on the sale of real estate held as investment are taxed at 20% (plus applica - ble surcharge and cess) or 40% (plus applicable surcharge and cess), depending on the period of holding. Outward remittance by non-residents is guided by FEMA. Where the payment of con - sideration for the purchase of property is from a person resident in India, such payment is also subject to withholding tax at 1%, subject to cer - tain thresholds. Where consideration received on the transfer of an immovable property (whether capital asset or business asset) is less than 90% of the value of the property for the purpose of the payment of stamp duty as per local laws, the value of the property for the payment of stamp duty is deemed as consideration received for the levy of income tax. Similarly, where the consideration paid for the acquisition of immovable property is less than 90% of the property value for the payment of stamp duty as per local laws, the dif - ference between the value of the property for the payment of stamp duty and the consideration discharged is taxed as income of the purchaser, at the applicable rates. Tax on non-resident taxpayers may, however, be reduced if favourable tax treaty provisions apply.
Rental income also qualifies for the following deductions/rebates: • a deduction of 30% of rental income (allow - ance towards repairs and maintenance); • property taxes paid to the local authority; and • interest paid on loans used to purchase the property. However, the set-off of loss arising from inter - est paid in excess of rental income is subject to certain limitations. Structured Real Estate Transactions Gains (long-term) arising on the sale of shares of an Indian company holding real estate assets are generally taxable at 10% (plus applicable surcharge and cess) where the seller is a non- resident or foreign company. Indian tax laws require the transfer of shares to take place at a fair market value, calculated in a prescribed manner. It is mandatory for parties entering into a pur - chase or sale of immovable property to obtain and quote their Permanent Account Number (PAN) 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 proper - ties, or where plant and machinery inseparable from the property are let out with the property.
362 CHAMBERS.COM
Powered by FlippingBook