Income from house in India for NRI

1) Yes the calendar year is the tax year in US and the FY is the tax year in India. There will be some issues in determining the taxable income and tax liability but they can be sorted out by maintaining the accounts separately for calendar year as well as financial year.

2) The EMI schedule contains breakup between principal and interest components. You can still ask the bank to give a separate certificate for the calendar year also. Normally, banks will oblige for Non Resident account holders.

3) There is no separate rebate or depreciation for self occupied house property. Only in the case of let out properties, 30% standard deduction is allowed.

4) Yes, it includes repairs and maintenance. However, if you are adding new floors / additions to the existing building,they are not allowed separately but they get added to the cost of improvements / acquisition for the purpose of capital gains, if the property is sold.

Hi,

1) For matching the US and Indian data due to difference in tax or accounting periods, you will have to maintain monthly data and records, so that the same may be reconciled for any given month. I don't think there is any other way of doing it. However, if you intended to ask about matching the tax paid data, then that has to be done on income basis and on production of tax residency certificate in India obtaining the same from US authorities.

2) For obtaining interest calculation for Indian NRI home loan, Indian banks will give interest paid certificate only for Indian financial year. However, you can also use loan amortisation schedule provided by banks here upon request anytime. That will clearly spell out your interest paid for US tax year.

3) On let out house property, you get only 30% deduction, which is supposed to include your repair, maintenance, renovation, depreciation, etc. There is no other deduction allowed except meagre amount of property taxes paid on actual basis. Hence, be contend with that deduction only.

4) Same as above, no other deduction allowed, unless you claim your rental income as your business income. Meaning thereby that you claim that letting out properties on rent, lease, etc. is your business activity. This, however, does not seem possible in your case. As such, only 30% deduction will be allowed.

I hope all your queries are resolved.

Regards,

CA. Sunny Thakral

Hi

1. That becomes a tough task. Maintenance of separate accounts as per different FY could be practiced.

2. Banks issue loan amortization statement detailing principal and interest elements in EMI over the period of loan.

3. There is flat 30% deduction on rent for the let out properties. No separate deduction for depreciation unless you show it as business income.

4. Expenses of revenue nature are allowed under 30% deduction. For expenses of capital nature, costs shall be added to the cost of acquisition; no deduction in current year.

Dear Sir,

1) Firstly determine your residential status both in USA and India. If you are resident in USA then you need to file return of total income for global income for the period 01.01.2017-31.12.2017 irrespective of the other country F.Y. and claim the benefit of withholding taxes paid, if any.

If you are non-resident in India then you need to file return of income for the income earned/received in India only and show the entire income earned in the F.Y. 01.04.2017-31.03.2018 irrespective of any other country F.Y.

2) You can ask the certificate of interest from the concerned bank for the period 01.01.2017-31.12.2017 on the basis of your foreign passport or OCI card. OR

If you have availed of Internet banking facility, you can retrieve the same from your net banking account. OR

At the time of disbursement of loan , you have been provided loan repayment schedule also. You can calculate the amount of interest from that schedule.

3) No deduction of rebate or deduction of depreciation allowed from self-occupied or let out HP.

4) Only standard deduction of 30% and house property tax paid is allowed and no other deduction is allowed.

Thanks

CA Vivek

Hi,

1. You can match by delecting last 3 months of this financial year and by adding last 3 month of last financial year

2. Bnaks will give repayment schedule indicating monthly schedulle of interets and principal loan. It will be for enture loan period and not for a year . You can calculate it from That.

3. Standard 30%

4. No other dedcutions except municiapl taxes paid for the property.

1. Which data do you want to match. There is no need of matching.

2. You can get in touch with your bank. Statement can be asked for any period.

3. There is no such deduction.

4. There is no separate deduction for these expenses. However, any major improvement cost will reduce your capital gain at the time of sale of the property.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Hi,

To answer your questions:

1. You will have to obtain separate details of your income for calendar year 2017 for your USA tax returns and FY 2017-18 for your Indian returns. It is cumbersome, but details are required for filing your tax returns in the respective countries.

2. Banks will issue a separate certificate for calendar year 2017. You will have to ask them for it.

3. There are two deductions available in India for let-out and self-occupied property. (i) Flat rate of 30% and (ii) the interest paid on the housing loan on such property. The repayment of principal is also a deduction but under Chapter VI-A (section 80C) and not under House Property.

4. The flat deduction of 30% does not include remodelling, renovation, etc.

Trust the above clarifies.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B

Indexed cost of house shall be calculated at the time of sale. The cost at the time of purchase is inflated as per the Cost Inflation Index.

Also, the construction and renovation Costs shall be indexed from the year of such construction/renovation.

You can take bills or even make signed vouchers. These bills shall only be useful for increasing cost of acquisition and thereby reducing capital gains at the time of sale.

To answer your follow-up question:

1. Yes, it is ideal if you are able to obtain bills or sign vouchers of expenses. Plumbing, etc are not covered covered. Costs incurred for the improvement of the house are allowed to increase the value of the house. This could be structural changes, fixed furniture, fencing, etc. Regular maintenance and repair do not get covered in it.

2. Yes, you will have to maintain these proofs until you own the property. In the eventuality that you sell the property, and you would like to state that the value of the house is higher than your actual purchase cost, since you have improved it, then the onus will be on you to prove the value of the expenses incurred by you. You need not collect all those expenses, if you do not want to claim it.

3. Indexed cost of a house is used when you have to compute capital gains. If you sell your house, say after 10 years, then capital gains will be the sale consideration, as reduced by the indexed cost of acquisition. Instead of reducing the actual cost of acquisition, the law allows you reduce a higher amount, by allowing the effect of inflation. You will have to compute it, only in the year in which you sell the house.

Indexed cost of acquisition and cost of improvement go to increase the value of your house, and consequently result in a lower capital gains whenever you sell the house.

Please note, that in case you incur any cost of improvement, that is also indexed based on the year in which you incur it and when you sell the house.

Trust this clarifies, as well.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B

You may keep record of house improvement and supporting vouchers for major expenses at least. If the period is more than 8 years at the time of sale, you may get valuation of your house done to arrive at cost of construction/acquisition.

The cost of acquisition is indexed to arrive at the cost of acquisition at the time of sale to adjust the cost for inflation. Suppose the house was acquired in, say, Feb 2003 for Rs 10 Lakhs and you are selling it in, say, March 2008, the indexed cost of acquisition as on the date of sale will be Rs 10 L * Index for the FY 2017-18/Index for the FY 2002-03, which is 25.9 Lakhs, i.e., 10*272(index in FY 2017-18)/105(Index in FY 2002-03). So, if you are selling the house for, say, Rs 30 Lakhs, the Long Term Capital Gains will be Rs. 4.1 Lakhs ( Rs 30 lakhs less Rs 25.9 Lakhs)

Dear Sir,

1) Please keep and maintain all the bills and vouchers in a proper manner. Yes these bills and vouchers should be maintained for all the expenses mentioned by you. It will help you at the time of scrutiny assessment and easily computation of capital gain at the time of sale.

Try to avoid cash transactions in making the above payments as major payments have to be made to unorganized people. Major part of the cost should be transacted through banking channel.

2) You have to keep them atleast till the date of sale and after sale for 6 years.

3) Indexation is done to give the benefit of cost inflation to the assessee. Therefore the cost incurred by you at the time of acquisition or construction will be increased proportionately at the time of sale to bring the cost at current value. It helps to reduce the capital gain and in tax liability.

Regards

Hi,

Regarding the previous question of yesterday:

1) Firstly, it is always better to keep record of all the expenses you are incurring whether they relate to any income tax issue or not. Secondly, only the major renovation or expenses which add capital value to the house shall be considered as improvement cost of the house, which can be used for indexation purposes at the time of sale of your house. The nature of expenses that you have mentioned do not actually imply that they may add any capital value of the house, hence might not be added to the cost of house for indexation purposes. The expenses you mentioned are resembling only routine repairs and maintenance expenses which are already allowed in the 30% deduction at the time of calculation of income from house property.

2) Yes, if these expenses add to the capital value of the house, you have to keep the bills till the time you sell the house and claim such expenses for calculation of cost of acquisition of the house property. In addition to this, please remember that if there are expenses which are adding to the cost of acquisition of house like extra construction activities, there are certain other things that may help or may be required to justify your claim for addition to the cost of acquisition of the house property. These are a certified architect;s estimate of addition to the cost of house for construction activities, properly approved map of the house from the local municipal authority, payment proofs from the banking channels, proof of other indirect taxes paid on purchase of material for construction of the house. Simple hand written vouchers without any substantive evidence might not be taken very seriously by AO at the time of calculation of capital gains tax from the sale of such house property.

3) An indexed cost of acquisition is the inflation adjusted cost of a capital asset which takes care into account of the inflation factor added year on year for acquisition of capital assets. These are notified every year.

I hope the query of yesterday stands resolved.

Regards,

CA. Sunny Thakral

Hi,

Regarding your today's query with respect to distinction of expenses between repairs and capital expenses.

One general rule, may not be called as an exclusive law, is followed for the purposes of calculation of the cost of acquisition of the house property.

Any house property within urban limits have a proper approved map of the construction plan of the house by the local municipal authorities. If there is any addition to the construction plan of the house within previous years, then generally only expenses related to that additional construction shall be treated as an addition to the cost of acquisition of the house property.

For example, on a plot of land, when you purchased the house, the approved map showed only 2 BHK construction. However, later on you add another floor or say another Bedroom, which increases the overall constructed area or size of the already constructed house, then the same shall be construed to have reflected to the addition of the cost of acquisition of the house property. Naturally, for carrying out such construction activities and getting the map approved from local municipal authorities, you will require various documents like architect's estimate, geo-technical studies depending upon the size of plot, area of construction etc.

All such documents add up to justify your claim for addition the cost of acquisition of house property before the AO.

Another example, say within that 2BHK house, and within the already constructed area, if you do routine maintenance like changing of flooring, plumbing and other activities, then all such expenses shall be deemed to add to only to the repairs of the constructed building. The same may not be treated as capital expenses.

I hope your query stands answered.

Regards,

CA. Sunny Thakral

Dear Sir,

1) 30% is a standard deduction from the rental income allowed to you irrespectively of any cost of improvement incurred.

2) Below costs incurred by you will constitute cost of improvement or renovation and should be added to the original cost of acquisition at the time of calculation of capital gain. Only capital expenditure incurred is allowed and not the routine expenses on repairs and renovations.

a) Cost of Cement, bricks, iron and other material used.

b) Cost of labour

c) Wood Cost

d) Iron doors

e) Amount paid to Municipal corporation

f) Amount paid to architect.

Plumber labour, plumber material, sanitary material, paint labour, paint cost,geyser are not allowed as these are routine expenses. If you still want to add these costs you can add and we will take the fight if the case will be selected for srcutiny.

Regards

1. That is a tough ask. There will be issues in determining the taxable income and tax liability but they can be sorted out only by maintaining monthly accounts so that you can easily prepare the financials for the Calendar as well as the financial year.

2. The EMI amortisation schedule contains breakup between principal and interest amounts. You can use that to compute for the tax purposes in US. However, you can request the bank to give a separate certificate for the calendar year and most probably they will oblige since other Non Resident account holders may also be having similar requests/needs.

3.On let out house property, you can avail a 30% deduction, which is supposed to include your repair, maintenance, renovation, depreciation, etc.

4.As mentioned above, the 30% standard deduction is supposed to cover all of that.

To answer your follow up questions:

1. Normal wear and tear costs may not be allowed. Costs incurred for permanent improvements made to the house like structural changes, Furniture, fixtures, etc can be allowed to increase the value of the property.

2. If you need to increase the value of the property for the improvements made by you, you will have to maintain these proofs until you own the property as the onus is on you to prove that the amount that has been spent on improving the property.

3. Indexed cost of a house is used when you have to compute capital gains. If you sell your house, say after 8-10 years, then capital gains will be the sale consideration, as reduced by the indexed cost of acquisition. Instead of reducing the actual cost of acquisition, as per the income tax act, you can reduce a higher amount to take into consideration the effect of inflation over the years. You will have to compute it, only in the year in which you sell the house. Indexed cost of acquisition and cost of improvement will help to increase the value of your house(more in line with the current market prices, though may not be truly reflective), and consequently result in a lower capital gains whenever you sell the house.

Please note, that in case you incur any cost of improvement, that is also indexed based on the year in which you incur it and when you sell the house.

There is no clear demarcation.

Thumb rule is that any expense done for structural changes which adds value to your house as compared to the original value of your house will be used for inflating the cost.

Repair is not eligible for this however overhaul renovation is eligible.

Cost of improvement can be cost incurred on any structural changes, fencing or grills installed, etc. Cost of interiors, furniture, etc will not be covered in cost of improvement. The standard deduction of 30% is irrespective of how much of expense you actually incur as expense.