NRI Taxation by Chartered Accountants Mumbai
There is a good amount of confusion concerning tax implication for NRIs that wish to sell any house property that they have in India. This article explores what proportion of tax is due and TDS deductible in case of NRIs wish to sell their property.
NRIs selling house property got to pay tax on the Capital Gains. The tax that's due on the profit depends on whether or not it’s a Short-term or Long-term capital gains. When a house property is sold, after a period of 2 years (reduced from 3 years to 2 years in Budget 2017) from the date it was owned – then it is a long-term capital gain. In case it held for 2 years or less – then it is a short-term capital gain.
Tax implications for NRIs also are applicable in the case of inheritance. Keep in mind the date of purchase of the initial owner to decide whether or not it’s a long-term or Short-term financial gain. In such a case the value of the property shall be the value to the previous owner.
How much tax is payable?
Long-term capital gains are taxed at 20% and Short-term gains shall be taxed at the applicable tax rates for the NRI.
TDS Deductible
When a NRI sells property, the Buyer is liable to deduct TDS @ 20%. And in case the property has been sold before two years (reduced from the date of purchase) a TDS of 30% shall be applicable.
How to save tax on capital gains?
NRIs are allowed to claim exemptions under section 54 and Section 54EC on long-term capital gains from sale of house property in India.
Exemption under Section 54
It is obtainable once there's a long-term financial gain on sale of a house property of the NRI. The house property can be self-occupied or let-out. Please note – you do NOT have to invest the enitre sale receipt, only the amount of capital gains. Of course, your purchase price of the new property could be more than the amount of capital gains. However, your exemption shall be restricted to the overall financial gain on sale.
Also, you'll be able to purchase this property either one year before the sale or two years once the sale of your property. You're additionally allowed to invest the gains in under-construction property, however construction should be completed inside three years from the date of sale.
From 2014-15, it's been held that ONLY one house property can be purchased or constructed from the capital gains to get this exemption.
Additionally, beginning assessment year 2015-16 (or Financial Year 2014-15) it's obligatory that this new house property should be located in Republic of India. The exemption underneath section 54 shall not be obtainable for properties bought or made outside India. (Do keep in mind that this exemption is taken back if you sell this new property inside three years from the date of its purchase).
If you've NOT been able to invest your capital gains till the date of filing of return (usually 31st July – it got extended by one month this year) of the yr within which you've sold-out your property, you're allowed to deposit your gains in PSU bank or 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 don’t have to pay tax on it.
Exemption underneath section 54F
It is available when there's a long-term capital gain on the sale of any capital asset other than a residential house. To get this exemption, the NRI needs to purchase one house property, within one year before the date of transfer or two years after the date of transfer. In case of construction of property, it should be within three years from the date of transfer of the asset. This new house property should be located in Republic of India and should not be sold-out within three 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 required to be invested. If the entire sale receipts are invested, then the capital gains are fully exempt otherwise the exemption is allowed proportionately.
Additional Exemption under Section 54 EC
You can also save the taxes on your long-term capital gains by investing them in certain bonds. Bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) are specified for this purpose. These bonds are redeemable after three years and should not be sold-out before the lapse of three years from the date of sale of the house property. Note that you just cannot claim this investment underneath any other deduction. You're allowed a period of six months to invest in these bonds – (and make sure that you invest in them before the IT Return filing date). From 2015, you are allowed to invest a maximum of Rs fifty lakhs only in a financial year in these bonds. The NRI should make these investments and show relevant proofs to the Buyer of property – Escertain or make sure from the buyer of the property that he does not deduct TDS on the capital gains. The NRI can also claim excess TDS paid at the time of return filing and claim a refund.
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