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Issues to keep in mind when buying a property in India

The investment has become attractive as the rupee has weakened against the US dollar

Question: Real estate developers are wooing non-resident Indians to buy residential properties in India. Is there any merit in the claim that such investment is to the advantage of NRIs? What would be the tax implications if an NRI owned a residential property? Would he acquire resident status in India under the tax laws and therefore be liable to tax on his overseas income?

ANSWER: If a non-resident Indian or an Overseas Citizen of India purchases a residential property, he would not be treated as a resident of India either under the income-tax law or the foreign exchange management law. To be resident in India under the tax law, the individual would have to be physically present in India for more than 181 days in a financial year. To be resident under the foreign exchange management law, he would have to take up full time employment in India. The acquisition of a residential or commercial property has no relevance under these laws.

According to latest data available, non-resident Indians and overseas citizens of India based in the United States, Singapore, UAE, Australia and Saudi Arabia have purchased residential properties in India in the past three years. The investment has become attractive as the rupee has weakened against the US dollar. It needs to be noted that a person who owns a property in India is exempt from tax in India on the annual value of the property which is maintained for self occupation. If the property is let out, the rental income would be liable to tax but one-sixth of the rent is exempt. Capital gains made on sale of the property after three years of holding it are taxable at the concessional rate of 20 per cent, but if the capital gains are reinvested in another residential property, the amount so reinvested is fully exempt.

Question: The Indian Government is proposing to invest a substantial amount on expanding the network of highways during the next five years. Are adequate resources available for this outlay or will it result in a higher budgetary deficit?

ANSWER: Apart from allocations made in the annual budget, a part of the resources are raised from the private sector under the public-private partnership arrangement whereby entrepreneurs invest 65 per cent to 70 per cent of the outlay on specific projects where the private players are given the right to levy tolls during the concession period of 30 to 35 years. These private investors also have tax incentives by way of 100 per cent deduction from their profit of the capital cost of the project. Apart from this initiative, the National Highways Authority of India has identified 33 existing projects for monetization to raise Rs.450 billion during the current financial year. These projects have a cumulative length of around 2,700 kilometres spread over 12 states. The assets would be monetized through Toll-Operate-Transfer modes. The successful bidder would make an upfront payment to NHAI and get the right to collect toll for 20 years. The toll collections have been rising consistently in respect of these projects and therefore investors are confident of earning a reasonable return on their investment through TOT. In the past, the monetization of highways has fetched the Government Rs.1.1 trillion which amount has been ploughed back into additional development of highways.

Question: I believe that new criminal laws have been enacted and are likely to come in force shortly. Will this help in rationalizing the criminal justice system?

ANSWER: Three new laws are to come into force from July 1 this year will replace the Indian Penal Code 1860, the Code of Criminal Procedure 1973, and the Indian Evidence Act 1872. Some of the highlights of the new legislation are audio visual recording of search and seizures of assets, presence of a forensic expert at the crime scene, etc. According to the Chief Justice of India who considers the new criminal laws to signify a watershed moment for Indian society, audio visual recording is an important tool for protecting civil liberties. He has opined that judicial scrutiny should safeguard the rights of citizens against procedural impropriety. According to him, the presence of a forensic expert at the crime scene will enhance the efficiency of the investigating team and allow crimes to be decoded with the aid of advancements in forensic technology. The old laws have become obsolete and therefore required a change so that investigations could be carried out by multidisciplinary agencies. This would enable Courts to establish the innocence or guilt of the accused and prevent any miscarriage of justice.

H. P. Ranina is a practicing lawyer, specializing in corporate and tax laws of India.