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Tax deductions and exemptions for NRI property owners

The loan eligibility for an NRI is calculated on the same lines as any other Indian resident

The Delhi NCR property market has become a favourite investment destination for non-resident Indians (NRI). According to rules, an NRI or a person of Indian origin (PIO) can buy any type of property in India except for farmland or agricultural property.

NRIs are also eligible for loans for buying properties in India. They can avail NRI loans from all major banks. The eligibility for an NRI is calculated on the same lines as any other Indian resident. NRIs can even rent out a property though the income earned from this source is taxable as per the Income Tax Act.

As an NRI, you are entitled to tax exemptions on the principle amount: like the amount spent towards repairs and collection charges, interest paid for any loan, payment of insurance premiums or any other tax paid to the state government. Only the remaining amount post these expenditures are considered taxable income.

However, income tax is applicable when buying the property. At the time of purchase of the property, an NRI may have to deduct income tax while making payments towards the purchase of the property.

Tax deduction on home loan

First-time individual homebuyers get tax deduction on interest of home loan (for self-occupied houses) under the newly inserted Section 80EE of the Income Tax Act. This rebate on home loan interest is however applicable only for home loans satisfying three conditions:

  • The loan is sanctioned by an approved financial institution or housing finance company
  • The loan amount is below Rs 25 lakh and the cost of is Rs 40 lakh or below
  • This should be the only house owned by the taxpayer at the time of sanctioning of loan

Deduction of an amount up to Rs 1 lakh can be claimed towards interest payable on home loan in the first financial year. If interest payable that year is less than Rs 1 lakh, then the balance can be claimed in the following year.

The amount of principal loan repaid is eligible for deduction under Section 80C.

However, the loan should have been taken from a bank or a housing finance company or a financial institution in India.

The aggregate of deductions under section 80C and 80CCC cannot exceed Rs 100,000.

But deduction on principal repayments is revoked if the property is sold within five years from the end of the year when the NRI taxpayer obtained possession.    More >>  NRI Property in India