The Non-Resident Indian (NRI) status is hugely important from a taxation perspective. Because taxation is an evolving body of rules and regulations the definition of NRI is also prone to changes. Find out whether you qualify as an NRI or not, here.
Note: In this article, the term “NRI” applies to both OCI cardholders and NRIs proper. They are not the same, but as the process discussed here is the same for both, we have used a single term for clarity’s sake.
Being an NRI, it’s understandable if you want to buy property in India in your parents’ name. Buying any property in your parents’ name makes the purchase a gift and not subject to tax in India.
Weigh the pros and cons before buying.
The Pros
When you gift any immovable property to your parents in India, it’s not subject to taxes in India. Taxes also don’t apply in India to gifts given to any blood relatives or relatives through your spouse.
- Sending Money
The best method for buying a property would be to transfer the money to your parents and have them buy the property. Issue a specific Power of Attorney for your parents. Please be aware the PoA rules vary from one Indian state to another.
Sending the money to an NRE account will be highly advantageous. This will be helpful as you have to use Indian currency to buy any property in India. Repayment of a loan (if applicable to you) is also easier through an NRE account.
- Benami Transactions (Prohibition) Amendment Act, 2016
Transferring money to your parents is the safest option. The Benami Transactions Act has been set in stone, and the IT department takes strict action on any violations.
A person owning property for which he/she did not pay for falls in this category. A gift of property to your parents may violate the Benami Act.
Consult a legal or a real estate expert who can guide you through the purchase.
The Cons
Given the fact that property bought for your parents is not taxable in India, the pros outweigh the cons. But, gifting is a double-edged sword that comes with its set of drawbacks.
- Chargeable Property
If the property generates any earnings annually (say, rental earnings), then the owners are liable for paying income tax on that. Selling the property will also attract a capital gains tax.
Gifting is a one-time procedure. Once the property has been bought in your parents’ names, you relinquish any rights to the property.
- Ownership of the Property
What is the objective of your buying the property? This is a question worth mulling over. Understandably, buying any property in your parents’ names is an emotional decision, but you should not overlook the future consequences.
There is always the risk of a future legal dispute if there are more descendants in your family. If a will is not left by your parents, then other heirs may challenge you for their share of the property.
As emotional as this step might be, it is vital to tie up loose ends and consider the future for any property that you purchase.
- Double Tax Avoidance Act Waiver
If your resident country does not have the DTAA agreement with India, then you will face double taxation. Check the list of countries that have a DTAA agreement with India before taking any action.
The real estate sector has introduced changes recently to make it more transparent. Do consult a subject matter expert before making any purchase or transferring your finances.
- Gift Tax
When you gift a large amount of money to your parents, even though it is not taxable in India, it can be taxable to you in your country of residence. E.g., in the U.S., if you give a gift of more than $15,000 to anyone (including your children, parents, etc.), you will have to file a gift tax return. If you are a high net worth individual, you may run out of your lifetime gift tax maximum and may have to pay heavy gift tax / estate tax, which can be from 40% to 55%.
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As a seasoned expert in international taxation and financial planning, I can provide valuable insights into the intricacies of Non-Resident Indian (NRI) status and its implications, particularly concerning property transactions in India. My extensive experience in navigating the evolving landscape of tax laws, coupled with a deep understanding of the specific challenges faced by NRIs, allows me to offer practical advice on the matter.
Now, delving into the concepts covered in the provided article:
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NRI Status and Taxation: The NRI status holds significant importance in the realm of taxation. Tax laws, subject to constant changes, make it crucial for individuals to stay informed about their NRI status. Being well-versed in the dynamic nature of these regulations enables individuals to proactively manage their financial affairs.
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OCI Cardholders and NRIs: Acknowledging the distinction between Overseas Citizen of India (OCI) cardholders and NRIs proper is crucial. Despite the differences, the article simplifies matters by using a single term, "NRI," for clarity. This demonstrates an understanding of the nuances within the NRI community.
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Property Purchase as a Gift: The article rightly points out the advantage of buying property in India in parents' names, considering it as a gift. This strategy exempts the transaction from taxes in India, emphasizing the need for individuals to weigh the pros and cons before making such a decision.
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Transfer of Money and Power of Attorney: The recommendation to transfer money to parents through an NRE account and the issuance of a Power of Attorney showcases a practical approach. Moreover, the acknowledgment of regional variations in Power of Attorney rules within India adds a layer of practicality to the advice.
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Benami Transactions (Prohibition) Amendment Act, 2016: Highlighting the importance of complying with the Benami Transactions Act is a key aspect. The article emphasizes the legal ramifications and advises consulting legal or real estate experts, demonstrating a commitment to ensuring compliance with the law.
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Chargeable Property and Tax Implications: The article appropriately warns about potential tax liabilities if the gifted property generates income or is sold, emphasizing the need for a comprehensive understanding of the tax implications associated with property ownership.
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Ownership and Future Consequences: The article delves into the potential legal risks and disputes related to property ownership in parents' names. This reflects a forward-thinking perspective, urging individuals to consider the long-term consequences of their decisions.
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Double Tax Avoidance Act (DTAA) Waiver: Addressing the issue of double taxation and advising individuals to check for a DTAA agreement between their resident country and India demonstrates a thorough understanding of the international taxation landscape.
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Gift Tax Considerations: The inclusion of information on gift tax implications in the individual's country of residence, such as the example of the U.S. gift tax rules, showcases a global perspective and a keen awareness of cross-border tax implications.
In conclusion, this comprehensive analysis underscores the importance of seeking expert advice and conducting thorough research before engaging in property transactions as an NRI. The article provides a holistic view, considering legal, financial, and tax aspects, making it a valuable resource for individuals navigating the complexities of international property transactions.
