Tax implications can seem to be little complicated when it comes to sale of property and becomes more complex if there is involvement of NRI seller. But after reading this article, most of your confusions will come to a happy ending.
Capital Gains Tax provisions are applicable to every individual who sells any assets in India be it a Resident or Non-Resident.
NRIs who own a property in India and are willing to sell the property are liable to pay Capital Gains Tax. The Capital Gain Tax refers to the amount of tax paid on the capital gain derived at the time of sale of property.
Long Term Capital Gain
Long Term Capital Gain refers to the profit earned by NRI on the sale of house property (whether purchased or inherited) which was held for more than 2 years. The tax to be paid on such gain is called the Long-term Capital Gain Tax.
Long-term Capital Gain is calculated as the difference between Net Sale proceeds received from the ‘sale of house property’ Minus ‘Indexed Cost of the House Property’.
Short-Term Capital Gain
Short-Term Capital Gain refers to the profits earned by NRI by the sale of property that was held for less than 24 months. Short-term capital gain tax is levied as per the income tax slab rate applicable to the NRI individual
Income tax rates and TDS applicability
Long term capital gain tax is charged at 20% of the net Long term capital gain amount. Similarly, the buyer is liable to deduct TDS at 20% in case the property is sold after 2 years from the date of purchase.
In case property is sold before 2 years i.e short term asset then, 30% TDS rate is applicable and taxable as per income tax slab.
Tax Savings on Capital Gains:
There are certain exemptions that can be availed by NRIs as well as Resident sellers to reduce Long Term capital gains tax.
- Section 54:
Exemption allowed if the net amount of long term capital gain is re-invested in the purchase or construction of new property in India. If you are investing the long term capital gain in construction of property then the construction must be completed within 3 years commencing from the date of sale of the property. No tax exemption claim can be availed if any property purchased or constructed outside of India through the proceeds received under long term capital gain. Also, if the NRI tax-payer is unable to invest the gain proceeds in purchase or construction of new property until the date return filing, in such case, the exemption can be availed by depositing all the gains in a public sector bank or other banks as mentioned under the capital gains account scheme.
- Section 54F:
If the property sold is not a house property in such a case the exemption can be claimed under section 54F where the individual NRI has to re-invest the entire sale proceeds in buying or constructing one residential house in India. However, kindly note that the newly purchased or constructed residential property cannot be sold before completion of 3 years.
- Section 54 EC:
NRI individuals can save long term capital gain tax under section 54 EC by investing the gain proceeds in bonds issued by NHAI or REC. however, to avail the tax benefit, NRI individuals must hold these bonds for 3 years i.e. these bonds must not be sold before 3 years.
None of the above exemptions can be availed on Short Term Capital Gain
Capital Gain Tax on Inherited Property?
Capital Gain Tax is also applicable at the time of sale of inherited property. If an NRI sells inherited property or property received as gift, then such transaction shall attract capital gain tax.
Good news is that, the period of holing of previous owner shall be also be counted and also cost to the previous owner shall be the cost of acquisition to the new owner.
NRIs can also take the sale proceeds to their resident country. They can repatriate upto USD 1 milliion per financial year, by giving proof of sale along certificate from Chartered Accountant( Form 15CB). It is always advisable to seek professional assistance from Chartered Accountant before selling a property to avoid any future consequences.
To know about TDS provisions on sale refer to our next post TDS on NRI seller for sale of property in India
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