Understanding Taxes on Fractional Real Estate Investments in India for NRIs

Non-Resident Indians (NRIs) looking to invest in fractional real estate in India have a great opportunity to tap into the potential of the market. But with any investment, understanding the tax implications is crucial. Here's a breakdown of what NRIs need to know about taxes on fractional real estate:

Taxation on Monthly Payouts:

• The monthly payouts you receive are considered interest on Compulsory Convertible Debentures (CCDs).

• This income is taxed under the head "Income from Other Sources" in your tax filing.

• The SPV (Special Purpose Vehicle) managing the fractional property will deduct TDS (Tax Deducted at Source) at a rate of 31.2% (including cess) from your monthly payouts.

• You'll receive a TDS certificate from the SPV every quarter, which you can use while filing your tax return.

• Remember, you'll still need to pay tax on this income as per your maximum marginal slab rate.

Taxation at Exit:

• When you exit the investment by selling your securities in the SPV, capital gains tax will apply.

• For NRIs, the investment is considered long-term if you hold the securities (both equity and debentures) for more than 3 years from the date of allocation.

• Long-term capital gains on sale of SPV securities are taxable at a flat rate without indexation benefit (meaning inflation adjustments are not considered).

Important Note:

• While you can invest from your NRE account but the rental income and capital gains will be credited only to your NRO account.

In Conclusion:

Fractional real estate offers NRIs a chance to invest in the Indian market with lower capital requirements. However, it's important to factor in the tax implications. Consulting a tax professional can help you understand your specific situation and optimise your tax liability.

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