Tuesday, 27 December 2016

Tax implication of Sale of Indian Residential propertyn by a NRI (Non Resident Indian)

Ive experienced many aspects of Sale of Residential property in India by a NRI.
Since its a long time held property, Long Term Capital Gain tax would be applicable. This can be calculated using Indexed cost of acquisition. Valuation needs to be done as on 01.04.1981 if your original purchase date is before 01.04.1981
Now, the tricky part. Since you are a NRI, the payment made to you will attract 20% TDS (Tax Deducted at Source) rate plus cess 3% on 20%. Thus effective rate of TDS will be 20.6% ON THE SALE AMOUNT!
So, if you sell a property for Rs.1,00,00,000 then the buyer needs to deduct Rs.20,60,000 and deposit with Government on your behalf. So, your considerable amount is lying with Govt. Lets say if your actual tax liability is only Rs.5,00,000 , then adjusting the TDS already done , your Rs.15,60,000 (20.6 - 5) is still lying with Dept. This Refund of Rs.15.6 lacs you can claim only by filing an Income tax Return whose due date is couple of months after end of Financial Year. Imagine your money locked up unnecessarily whereas you can do/invest in better options.
The way out is you need to approach your Tax officer to grant relief by reducing TDS rate from 20.6% to bare minimum possible say 1% or so.
You can claim exemption from Long Term Capital Gains if you reinvest the gains in another house property. However most of the NRIs dont do that and repatriate the funds at their location.
Other way to save tax is Invest in Capital Gain Bonds which has 3 year lock in period. You need to invest only the Gain amount and not full sale amount. The Bonds also gives you a payout of around 6%pa interest. The maximum an individual can invest in these bonds are Rs.50 lacs. Thus, if your Gain amount is Rs. 30 lacs and invest in Bonds Rs. 30 lacs you dont pay any tax.
Hope this gives you some idea about Sale of Property in India by a NRI.
Feel free to get in touch if you still have queries.
CA Niraj Mahajan, Pune


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