NRI Taxation India: Sale of Immovable in India | FAQs
The taxation of non-resident Indians (NRIs) in India upon the sale of immovable property is an important aspect governed by Indian tax laws. When NRIs sell property in India, they encounter specific tax obligations and considerations that necessitate careful understanding and compliance with Income Tax Laws. From capital gains taxation to deductions and reporting requirements, navigating the taxation framework is essential for NRIs to ensure smooth and legally compliant property transactions in India.
Table of Contents
- What is Cost of acquisition and Indexed Cost of acquisition for computation of Capital Gains?
- What are the tax responsibilities of a resident Indian buying a residential property in India from a Non-Resident Indian (NRI)?
- Does Capital Gains Tax Apply To NRI / PIO / OCI?
- How is rate of Capital Gains Tax computed?
- What does Stamp Duty Value signify, and what implications arise if the Stamp Duty Value of the property sold exceeds the actual sale consideration?
- How does Double Taxation Avoidance Agreement (DTAA) work in the context of capital gains tax paid in india on the foreign tax treatment?
- Are NRIs, PIOs, and OCIs eligible to obtain housing loans from any Indian bank for purchasing property?
What is Cost of acquisition and Indexed Cost of acquisition for computation of Capital Gains?
Answer: The cost of acquisition refers to the amount incurred by an individual to acquire a capital asset. It includes the purchase price and any expenses directly related to the acquisition, such as brokerage fees, stamp duty, and legal fees.
PROPERTY HELD BEFORE APRIL 1, 2001: If a property was acquired before April 1, 2001, or acquired through gift or inheritance from someone who acquired it before that date, the cost of acquisition is determined as follows:
| A. The actual cost of acquisition | B. The fair market value as of April 1, 2001 | Whichever is Higher |
However, recent amendments have capped the fair market value as of April 1, 2001, not exceeding the "stamp duty value" of the property on that date. "Stamp duty value" refers to the value adopted for stamp duty payment purposes by government authorities.
INHERITANCE / GIFT: For inherited or gifted properties, the cost of acquisition/improvement is the actual cost incurred by the person from whom the asset is received. The period of holding is calculated from the original acquisition date until the sale date.
There's a debate over whether indexation benefits should start from the date of inheritance/gift or from the date of original acquisition by the previous owner. While we believe indexation benefits may apply from the date of the previous owner's acquisition, lower tax authorities might differ, often granting indexation benefits from the date of inheritance/gift.
Indexed Cost of Acquisition / Improvement: For long-term capital assets held for over 24 months, indexation benefits apply, termed as the 'Indexed Cost of Acquisition/Improvement.' This concept allows for a deduction larger than the actual cost, adjusted for inflation using the government-issued inflation index for the relevant year.
To compute capital gains, the indexed cost of acquisition is often used to determine the real gains made on the sale of an asset after considering the impact of inflation over the holding period.
CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services.
What are the tax responsibilities of a resident Indian buying a residential property in India from a Non-Resident Indian (NRI)?
Answer: When a resident Indian purchases a residential house in India from an NRI, certain tax obligations arise for the resident buyer. The resident buyer is required to deduct tax at either 30% on Short-Term Capital Gains (STCG) or 20% on Long-Term Capital Gains (LTCG) arising to the NRI from the consideration payable for the purchase of immovable property. Failure to deduct tax may result in penalties and interest for the resident Indian.
The resident buyer may request the NRI to obtain a Lower Tax Deduction Certificate or Tax Exemption Certificate (TEC) from the Tax Officer specifying the appropriate amount of tax to be deducted and withheld from the sale consideration. This tax amount must be deposited with the Tax Department within the prescribed timelines. While it typically takes 3 to 6 weeks to obtain the TEC, doing so protects the resident Indian from any potential liability.
Alternatively, the buyer can electronically submit an application for lower tax deduction, using the form 13, to determine the appropriate rate of tax to be deducted and the net amount payable to the NRI after the deduction of tax.
Does Capital Gains Tax Apply To NRI / PIO / OCI?
Answer: Yes, Capital Gains Tax (CGT) does apply to NRIs (Non-Resident Indians), PIOs (Persons of Indian Origin), and OCIs (Overseas Citizens of India) on certain transactions involving the sale or transfer of capital assets in India. The tax implications depend on various factors such as the type of asset sold, the holding period, and the tax treaties between India and the country of residence of the individual. Generally, NRIs, PIOs, and OCIs are subject to tax on capital gains arising from the sale of immovable property situated in India, subject to certain exemptions and deductions as per the provisions of the Income Tax Act, 1961. It is advisable for NRIs, PIOs, and OCIs to seek professional advice to understand their tax liabilities and obligations related to capital gains in India.
CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services.
How is rate of Capital Gains Tax computed?
Answer: The rate of Capital Gains Tax (CGT) in India depends on various factors, including the type of capital asset sold, the holding period, and the taxpayer's residential status. Here's a general overview:
Short-term Capital Gains (STCG): For assets held for less than or equal to 24 months (36 months for immovable property), short-term capital gains are taxed at the applicable slab rates for the taxpayer. These rates vary depending on the individual's total taxable income.
Long-term Capital Gains (LTCG): For assets held for more than the specified holding period, long-term capital gains are taxed at specific rates:
For listed equity shares or equity-oriented mutual funds: LTCG exceeding Rs. 1 lakh is taxed at 10% without indexation benefit.
For other assets such as immovable property, debt mutual funds, gold, etc.: LTCG is taxed at 20% with indexation benefit, or at 10% without indexation benefit, whichever is lower.
Indexation Benefit: Indexation allows adjusting the purchase price of the asset for inflation, thereby reducing the taxable capital gains. The cost inflation index (CII) is used for indexation purposes.
Surcharge and Cess: Additionally, a surcharge is applicable to individuals with higher income levels. The applicable cess is also levied on the tax payable.
What does Stamp Duty Value signify, and what implications arise if the Stamp Duty Value of the property sold exceeds the actual sale consideration?
Answer: Stamp duty value refers to the value of an immovable property as determined by the government authorities for the purpose of calculating stamp duty payable on property transactions.
In case of transfer of an Immovable Property, the Act provides that the actual sale consideration should be compared with the stamp duty value. Stamp duty value is the value assessed at time of registration of the sale of the property with the Registration Authority of the State Government in India. Accordingly, while calculating capital gains, the actual sale consideration is compared with the stamp duty value and higher of the two values should be taken as sale consideration.
However, as per recent amendment in law, only if the Stamp Duty Value exceeds the actual sale consideration by more than 110% of the sale consideration, then in such case while calculating Capital Gains, Stamp Duty Value shall be considered as Full Value of consideration for the purpose of computing the Capital Gains.
How does Double Taxation Avoidance Agreement (DTAA) work in the context of capital gains tax paid in india on the foreign tax treatment?
Answer: In the context of capital gains tax paid in India and the foreign tax treatment under a Double Taxation Avoidance Agreement (DTAA), the agreement typically works to prevent the same income from being taxed twice—in both India and the foreign country. Here's how it generally works:
Residency Status: The DTAA defines the residency status of an individual or entity, which determines their tax liability in each country.
Tax Credit: If an individual or entity is a tax resident of one country but earns income in another country (such as capital gains in India), the DTAA allows them to claim a tax credit in their country of residence for the tax paid in the source country (India, in this case).
Tax Exemption or Reduced Rates: The DTAA may also specify provisions for exempting or reducing the tax rate on certain types of income, including capital gains, earned by residents of one country in the other country.
Benefit of Lower Rate: If the tax rate applicable in the country of residence is lower than the tax rate in the source country (India), the individual or entity may opt to pay taxes at the lower rate and claim the benefit under the DTAA.
Avoidance of Double Taxation: By providing mechanisms such as tax credits, exemptions, or reduced rates, the DTAA ensures that taxpayers do not face double taxation on the same income, thus promoting international trade, investment, and economic cooperation between countries.
It's essential to review the specific provisions of the DTAA between India and the relevant foreign country to understand how capital gains taxation is addressed and to ensure compliance with both jurisdictions' tax laws. Consulting a tax advisor or expert familiar with international taxation can provide valuable guidance in this regard.
CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services.
Are NRIs, PIOs, and OCIs eligible to obtain housing loans from any Indian bank for purchasing property?
Residency Status: NRIs, PIOs, and OCIs must meet the eligibility criteria set by the bank regarding their residency status, income source, and other factors.
Documentation: They are required to provide specific documents such as passport, visa, employment contract, income proof, overseas address proof, etc., as per the bank's requirements.
Loan Amount and Repayment Terms: The loan amount sanctioned and repayment terms may vary based on factors like income, creditworthiness, property value, etc.
Interest Rates: Interest rates for NRI housing loans may differ from those offered to resident borrowers and may be subject to periodic revisions.
Property Type: Banks typically finance the purchase of residential properties (apartments, houses, plots) and may have restrictions on financing certain types of properties like agricultural land, commercial properties, etc.
CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services.
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