Tax Implications for NRIs on Real Estate and Fractional Ownership in India

Mananki Parulekar
Jul 29
2 min read

The Indian real estate market continues to be a magnet for Non-Resident Indians (NRIs), offering attractive returns and a tangible connection to their roots. While traditional property investments remain popular, the emergence of fractional ownership is opening new avenues. However, a common hurdle for many NRIs is navigating the complex web of Indian tax laws. Whether you're buying full ownership or a fraction of a property, not understanding the tax implications is a critical mistake.

Here’s a guide to help you sail through this complex process

1. Tax on Rental Income for NRIs

If you're an NRI earning income from a property—whether fully owned or through fractional ownership real estate India platforms—it is taxable under Indian law.

Rental income is categorized under "Income from House Property."
A standard 30% deduction is allowed for maintenance, regardless of the actual expense.
Tenants or property managers are required to deduct TDS at 30% on payments to NRIs.
Your taxable rental income is determined by calculating the Net Annual Value (NAV) of your property through these steps:
Take the gross annual rent received
Subtract municipal taxes paid on the property
Apply the standard deduction of 30% from the NAV
Deduct interest paid on any home loan (if applicable)
The final figure after these deductions represents your taxable rental income.

2. Capital Gains Tax on Property Sale

Whether you're selling a second home or a directly owned apartment, you may incur capital gains tax.

Short-Term Capital Gains (STCG)

If held for less than 2 years, profits are added to your taxable income and taxed as per your slab (up to 30%).
Currently, short term capital gains on shares are taxed at a rate of 20% under Section 111A with effect from 23 July 2024.

Long-Term Capital Gains (LTCG)

The tax rate applied here is 12.5%, but this applies only to gains exceeding ₹1.25 lakh. Moreover, there's a 10% TDS deduction from these long-term capital gains.

For discontinued projects or older schemes related to real estate investment in India (discontinued) or NRI investment in India (discontinued), capital gains still apply based on original holding period and exit terms.

3. TDS (Tax Deducted at Source) for NRIs

India mandates TDS on all payments to NRIs.

Buyers or platforms must deduct 20% TDS on LTCG or 30% on STCG before paying the NRI.
This often results in higher TDS than actual tax liability, so NRIs are advised to obtain a Tax Residency Certificate (TRC) from their country of residence to lower the TDS.

Final Thoughts

From full ownership of a second home to shared investments in luxury vacation homes at holiday destinations, real estate offers NRIs diverse ways to invest in India. However, both traditional and fractional property investment carry tax responsibilities that cannot be ignored.

Always consult a tax advisor or CA familiar with NRI taxation and the evolving landscape of fractional real estate in India to ensure compliance and avoid penalties.