What is a Property Tax For NRIs?

If you are a Non-Resident Indian (NRI) who owns a flat, house, or a plot back home, you must have questioned yourself: Do I still need to pay property tax in India? Well, the answer to this question is yes, and there's often a lot of confusion about what is covered under property tax.

To clear this confusion, in this blog, we will walk you through exactly what NRIs owe, how to pay property tax, and how it links to your income tax obligations.

Key Difference Between Property Tax vs Income Tax

A lot of NRIs often end up mixing two entirely different taxes, which are municipal property tax and income tax on property. Here is the key difference between these two taxes:

• Municipal Property Tax: It is a local tax paid to your city's municipal corporation every year, based simply on owning an immovable property in India.
• Income Tax on Property: It is a central government tax (TDS, rental income tax, or capital gains tax) that applies only when the property is either sold or earns income.

However, we mainly focus on municipal property tax in this blog. Moving further, we will discuss the main question: Do NRIs need to pay municipal property tax?

Do NRIs Have to Pay Municipal Property Tax?

Yes, NRIs have to pay municipal property tax without any exceptions. Instead of your residency status, municipal property tax is charged only on ownership of an immovable property. You are legally required to pay this annual tax to the local municipal body, irrespective of whether you live in Dubai, London, or Toronto, or if you own a flat, house, shop, or even vacant land in India. Also, it applies regardless of whether the property is self-occupied, rented out, or lying vacant.

Don't think that ignoring it will make your liability disappear. Municipal corporations can charge monthly interest at a rate of 1-2% on overdue amounts, issue notices for penalties, and place legal holds on the property (in serious cases) that can block its sale or transfer.

You must now be thinking, how is this tax calculated? Let's see that.

How is Property Tax for NRIs Calculated?

Property tax for NRIs is calculated by municipal corporations based on various factors such as:

• Locations and zones within the city
• Built-up areas and carpet area of the property
• Age of the building and pattern of usage
• Property type (residential, commercial, or vacant land)

Remember that every city has its own valuation method. For example, Mumbai's BMC, Bengaluru's BBMP, Delhi's MCD, Chennai Corporation, and Hyderabad's GHMC all have separate portals and formulas.

To have a rough benchmark, remember that a typical two-bedroom flat might attract anywhere from ₹3,000 to ₹15,000 every year in Bengaluru and Hyderabad, and ₹10,000 to ₹50,000 in Mumbai, based on the size and location. Now that we know how it is calculated, let's discuss how you can pay it from abroad.

How Can NRIs Pay Property Tax From Abroad?

Most major cities in India now allow you to make fully online payments through their municipal portals. This makes the tax-paying process easier for NRIs even from overseas. Here is how you can pay property tax online:

• Visit your city's official municipal tax portal (e.g., BBMP, MCD, BMC, or your local corporation's website).
• Search using your property identification number (PID), khata number, or increasingly by address.
• Pay the tax through international debit/credit card, UPI, or net banking. Also, many portals now accept payments directly from an NRE or NRO account.
• Download and save the digital receipt immediately.

In case you have lost your old tax records or PID number, contact the municipal citizen helpline, or appoint a trusted local representative or family member to visit the ward office on your behalf. Moreover, try avoiding cheque payments wherever possible because they are slow and harder to track from overseas. Do you know many municipal bodies also offer rebates?

Early Payment Rebates

Several municipal bodies offer a rebate of 2-10% for paying your full amount of property tax before a specified deadline (often early in the financial year). To save money and avoid last-minute issues with the portal, the simple way is to pay early.

If you are thinking you will just ignore it and skip paying the tax, well, consequences are waiting for you. Let's discuss the consequences of not paying property tax.

What Happens If You Don't Pay?

Skipping municipal property tax might seem normal, but it carries various risks, such as:

• Interest charges accrue every month on the outstanding amount.
• You may receive penalty notices. Also, to recover the dues, some municipal corporations have seized and auctioned properties in long-default cases.
• Property transactions get blocked. Since the buyers and banks ask for the latest tax receipts routinely as part of due diligence, you will need a clear history of tax payments to sell, transfer, or take a loan against the property.

Instead of clearing years of accumulated liability later, keeping payments current each year is much cheaper. Now, it's common to have doubts about how property tax is connected to your ITR. Let's clear this confusion.

How Property Tax Connects to Your Income Tax Return?

Property tax is not just a municipal formality, but it has a direct income tax benefit. So, if your property is rented out, you can actually deduct the property tax you paid during the year from the gross annual value while calculating "Income from House Property" in your ITR. Ensure you keep your receipts safely as they reduce your taxable rental income.

Additionally, apart from municipal property tax, there are other property-related taxes that NRIs must also know. We will now discuss these taxes.

Other Property-Related Taxes NRIs Should Know

Although municipal property tax applies purely for owning a property, NRIs must also stay aware of some related central taxes linked to property transactions:

• TDS on Rental Income: Rent paid to an NRI is generally subject to TDS under Section 195 at applicable rates (after considering surcharge and health & education cess). The effective rate commonly works out to around 31.2%, depending on the applicable surcharge.
• TDS on Property Sale: Buyers need to deduct TDS on the entire sale consideration and not just the gain. Currently, for long-term holdings (over 24 months), the rate is 12.5% (plus surcharge and cess) for properties sold after 23rd of July 2024, and around 30% for short-term holdings.
• Capital Gains Tax: Long-term capital gains on property are taxed at 12.5% without any indexation benefit, while short-term gains are taxed at the applicable slab rates.
• Exemption: By reinvesting under Section 54, 54F or 54EC, NRIs can reduce their capital gains tax liability.
• Lower TDS Certificate (Form 13): To avoid excess deduction and cash-flow strain, NRIs can apply for a lower or nil deduction certificate before a sale, as TDS is often deducted on the entire value rather than actual gain.

NRIs must file an ITR even when TDS has already been deducted because TDS on both rent and sale is typically higher than the actual tax owed. Filing an ITR is often the only way to claim the refund for the excess TDS deducted. At last, we will look at a quick checklist for NRIs owning a property.

Quick Checklist for NRI Property Owners

Here is a checklist for NRIs owning a property and confused about municipal property taxes:

• Even if the property is vacant or self-occupied, pay municipal property tax every year.
• Keep digital receipts for each payment year as they support both tax deductions and future sale transactions.
• If your actual liability is lower than the flat TDS rate, apply for a lower TDS certificate before selling or renting out a property.
• To claim a refund for any excess TDS, file your Income Tax Return (ITR) annually.
• Use Forms 15CA/15CB when repatriating sales proceeds abroad.

To Conclude

Municipal property tax is a small tax, but it is non-negotiable for every NRI who owns a property in India. It means there are no exemptions based on your residency. To ensure your Indian property is fully compliant and prevent legal complications, it is important to pair timely property tax payments with correct TDS management and file ITR annually.

Further, to get expert guidance with ITR filing and ensure compliance, contact an expert at Savetaxs. We have an entire team of experts who can help ensure you file your ITR on time accurately and confidently. Our team can also help with TDS, repatriation, NRE/NRO account opening, and other NRI-related matters. Connect with us right away, as we are working 24/7 across all time zones and ensure you don't leave any refund on the table.