INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
partner into a partnership firm. However, such structures must be individually analysed. 8.3 Municipal Taxes Municipal taxes are calculated based on location, size, age, use and occupation of the property (self-occupied/tenanted). Sometimes, taxes are based on rents received. There are no exemp - tions for payment of property taxes, except for properties used for charitable purposes/religious institutions. 8.4 Income Tax Withholding for Foreign Investors Tax consequences in India follow the residen - tial status of the income-earning person, deter - mined 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 rea - son 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 situ - ated in India is subject to tax in India, and with - holding tax applies. A foreign company’s income is usually taxed at 35% (plus applicable surcharge and cess). How - ever, 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), depending on the period of holding. Where payment of consideration 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 property value for the purpose of the pay - ment of stamp duty as per local laws exceeds 110% of the consideration received on its trans - fer (whether capital asset or business asset), value of property for payment of stamp duty is deemed as consideration received for levy of income tax. Similarly, where consideration paid for acquisition of immovable property is less than 90% of property value for payment of stamp duty as 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 fol - lowing deductions/rebates: • deduction of 30% of rental income (allowance towards repairs and maintenance); • property taxes paid to local authority; and • interest paid on loans used to purchase the property. However, set-off of loss arising from interest paid in excess of rental income is subject to certain limitations. Structured Real Estate Transactions Gains (long term) arising on 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.
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