Tax Implications For The NRIs Who Want To Sell The Property In India
Posted on October 01 2020
Share:
976
NRIs who have sold their property which is situated in India have to pay tax on the Capital Gains. The tax that is payable on the gains depends on whether it’s a short term or a long term capital gains. When a house property is sold, after a period of 3 years from the date it was owned then there is a long term capital gain and in the other hand, if it is owned for less than 3 years then there is a short term capital gain. In case the property which has been inherited, make sure you consider the date of purchase of the original owner for calculating whether it is a long term or a short term capital gain. In such a case the cost of the property will be the cost to the previous owner.
How much tax is payable?
Long term capital gains are taxed at 20% whereas the short term gains will be taxed at the applicable income tax slab rates for the NRI which is based on the total income which is taxable in India for the NRI.
TDS Deductible
When an NRI sells the property, the buyer is subjected to deduct TDS @ 20%. In case the property has been sold before 3 years from the date of purchase a TDS of 30% will be applicable.
How to save tax on capital gains?
NRIs can claim the exemptions under section 54 and Section 54EC on the long term capital gains from the sale of the house property in India.
Exemption under section 54
It is applicable when there is a long term capital gain on the sale of a house property of the NRI. The house property can be self occupied or let out. The most important thing is that you do not have to invest the entire sale receipt, but the amount of capital gains. Of course, your purchase price of the new property must be higher than the amount of capital gains; therefore your exemption will be limited to the total capital gain on the sale. You can also purchase this property either one year before or 2 years after the sale of your property. Also, you are allowed to invest the capital gains in the construction of a property, but the construction should be completed within 3 years from the date of the sale. In the Budget for 2014-15, it has been clarified that only ONE house property can be purchased or constructed from the capital gains to claim this exemption. Also starting assessment year 2015-16 or financial year 2014-15, it is important that this new house property should be situated in India. The exemption under section 54 will not be applicable for the properties purchased or constructed outside India to claim this exemption. (Do remember that this exemption can be taken back if you sell this new property within 3 years of its purchase).
If you have not been able to invest your capital gains until the date of filing of the income tax return, usually 31st July of the financial year in which you have sold your property. You are allowed to deposit your gains in a PSU bank or any other banks as per the Capital Gains Account Scheme, 1988, and in your return claim this as an exemption from your capital gains then you do not require to pay any tax on it.
Exemption under section 54F
It is applicable when there is a long term capital gain on the sale of any capital asset other than a residential house property. To claim this exemption, the NRI has to purchase one house property within one year before the date of transfer or 2 years after the date of transfer or construct one house property within 3 years after the date of transferring the capital asset. This new house property should be situated in India and should not be sold within 3 years of its purchase or construction. Also, the NRI should not own more than one house property besides the new house and nor should the NRI purchase within a period of 2 years or construct within a period of 3 years any other residential house. Here the entire sale receipts are needed to be invested. If the entire sale receipts are invested then the capital gains are fully exempt otherwise the exemption is allowed respectively.
Exemption is also available under Section 54 EC
You can also save the tax on your long term capital gains by investing them in certain bonds. Bonds issued by the NationalHighway Authority of India (NHAI) or Rural Electrification Corporation (REC) have been stated for this purpose. These are redeemable after 3 years and should not be sold before the lapse of 3 years from the date of sale of the house property. You cannot claim this investment under any other deduction. You are allowed a period of 6 months to invest in these bonds, though to be able to claim this exemption, you will have to invest before the date of filing the income tax return. The Budget for 2014 has stated that you are allowed a maximum of Rs 50 lakhs to invest in a financial year in these bonds.
The NRI should make these investments and show suitable proofs to the Buyer, to make sure that the TDS is not deducted on the capital gains. Also, the NRI can make a claim for excess TDS deducted at the time of filing the income tax return and claim a refund on it.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.
initiative
Customer 1st
1 stop solution
Security
Trust
Values & Ethics
Peace-of-mind Guaranteed
Categories
Comments (0)
Write a comment
Your email adddress will not be published. Required fields are marked