Friday, June 26, 2009

NRIs and gifting property Rules

Mr Sharma is a Non-Resident Indian with relatives in India. Owing to a flourishing business, he is interested in gifting a house in India to his nephew. However, he is not sure about the taxation on such a transaction owing to his NRI status.

Let's take this as an example to learn more about taxes associated with such a transaction with regard to NRIs.

No special permission is required for an Indian citizen residing outside India to acquire (by purchase or gift) any immovable property in India other than agricultural land, plantation property or a farmhouse.

Therefore, Sharma can buy a house in India as easily as any resident Indian.

Also, for an NRI, there is no permission required to transfer (whether by sale or gift) immovable property in India. One important factor to keep an eye out for is the gift tax and income tax.

Under the Gift Tax Act, 1958, gift tax was payable by the donor up to September 30, 1998. The Gift Tax Act has been repealed with effect from October 1, 1998 and therefore the Gift Tax is not chargeable for the gifts made on or after 1st October, 1998. However, a new provision was inserted in the Income Tax Act 1961 under section 56 (2) which provides that if the gift is received by an Individual or Hindu Undivided Family (HUF) from any relatives or blood relatives or at the time of marriage or as inheritance or in contemplation of death and the aggregate of gifts received exceeds Rs 50,000 in a year, the gift will be taxable as 'income from other source'.

The Explanation to Section 56(2)(vi) provides that the expression "relative" means:

* Spouse of the individual;
* Brother or sister of the individual;
* Brother or sister of the spouse of the individual;
* Brother or sister of either of the parents of the individual;
* Any lineal ascendant or descendant of the individual;
* Any lineal ascendant or descendant of the spouse of the individual; and
* Spouse of the person referred to in clauses (ii) to (vi)

There is no restriction on gifts by NRIs to resident Indians in foreign exchange or Indian Rupees or in the form of assets -- in this example, the house. All sorts of gifts from relatives (as defines under Income Tax Act) are tax free.

All that is required is an offer by the donor and acceptance thereof by the receiver in black and white. To safeguard against any hassles, the receiver should request the donor for a gift and then the donor should remit the amount to the receiver.

Alternatively, the donor can offer the gift. In either case, it is necessary for the receiver to accept the gift in writing (maybe through a thank you note).

Also, the provisions relating to taxation of gifts from non-relatives and non-specified persons in excess of Rs 50,000 would be liable to income tax only when the gift is a sum of money, whether in cash, by way of cheque or a bank draft.

Thus, gifts in kind such as a gift of shares, gift of land, gift of house, gift of units or mutual funds, jewellery, etc. would not be liable to any income tax at all.

Therefore, Mr. Sharma or his nephew would not pay any 'gift tax' or income tax for such a transaction.

Residential property poised to lead India rebound Assetventures

MUMBAI, India -- Residential real estate will lead the recovery of India's wounded property market in 2010 thanks to accelerating economic growth, lower interest rates and improved liquidity, Indian ratings and research agency CRISIL said Wednesday.

Prices for commercial and retail space will likely remain weak through 2010 because of oversupply and slack demand, CRISIL said in a new study of 10 cities across India.
"Residential real estate is where we think by 2010 we can look for some kind of recovery," head of research Sudhir Nair said in a conference call with reporters. "There is a significant overhang of supply in commercial projects. ... You can't see a lease rental increase for a couple of years in this market."

India's property market, like many around the globe, boomed from 2005 to mid-2008. Average prices of both commercial and residential space more than doubled during that period, according to CRISIL.

In some high-demand places, like Mumbai, the nation's financial capital, commercial prices went up 231 percent, while residential prices rose 121 percent.

Since July, prices have softened. CRISIL predicts commercial lease and rental rates will fall by 38 percent from early 2008 peaks. Residential prices have already fallen by an average of about 20 percent, and will likely correct another 10 percent, CRISIL said.

India increases labour rates assetventures

Indian property developers in the city of Mumbai have announced that they are going to increase their labour rates, following a recent recovery in the stock market, and signs that property investors are starting to return to the market...

However, the industry move has received criticism, as existing demand for property in India remains weak, compared to this time last year, despite the fact that residential prices have fallen by up to 30 per cent since their peak last year.

Many experts project that many developers need to cut their rates by a further 15 per cent rather than raise them.

"It is understandable that Indian developers want to make up for lost revenue during the economic downturn, by hiking up their rates, especially as more global investors are seeking to invest in BRIC (China, India, Russia, and Brazil) nations.

"But many experts project that developers should cut their rates by a further 15 per cent, rather than raise them. Consequently, new-build property prices in the city will also have to be raised inline with construction rates, making property less affordable. This could slowdown any potential cyclical upturn in Mumbai's housing market."

Residential property prices to fall 8-10% more in 2009

Despite popular belief, residential property prices are expected to fall by another 8-10% in 2009 till they stabilise in 2010.
Residential property rates declined by 18-20 per cent in March this year, from the highs in the first half of 2008. Despite this drop, homebuyers adopted a 'wait and watch' policy, and this trend is likely to continue through 2009, as per the latest report by CRISIL Research.

Owing to improved affordability, steady economic growth and greater liquidity, the residential segment will witness a speedier recovery compared to the retail and commercial segments. Lease rentals are not expected to stabilise till another two years. Mr. Sudhir Nair, Head, CRISIL Research says, “Demand in the commercial and retail segment is likely to remain under stress for the next two years owing to excess supply and weak off take.”

Amongst the 10 cities covered by CRISIL Research, Pune, Bengaluru and Mumbai have witnessed the steepest correction in capital values compared to the highs seen in the first half of 2008. Capital values in NCR had already started stabilising during the first half of 2008 even as the upward trend continued in other cities. Hence, capital values in NCR declined by only 18 per cent, which is relatively low compared to other cities. The report covers more than 400 areas across 88 micro markets in 10 cities--Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Kochi, Kolkata, Mumbai-MMR, NCR and Pune.

It is believed that lower home loan interest rates as well as better job security would help to revive demand in the residential segment. Hence, capital values are likely to stabilise in the first half of 2010, and increase during the second half of the year.