TAX Implication on Purchase of Property by Resident Indian from an NRI

NRIs who are selling house property which is situated in India have to pay tax on the Capital Gains.

THERE ARE 2 TYPES OF CAPITAL GAIN:

1. Short Term Capital Gain: When a house property is sold within 2 yrs it is Short term Capital gain.
2. Long Term Capital Gain: When a house property is sold, after a period of 2 years from the date it was owned – there is a long term capital gain

TAXABILITY OF CAPITAL GAIN: Long term capital gains are taxed at 20% and short term gains shall be taxed at the applicable income tax slab rates for the NRI based on the total income which is taxable in India for the NRI.

NOTE: NRI cannot adjust basic exemption limit against LTCG.

TDS APPLICABILITY:

• TDS is to be deducted on the transaction value and at the time of making payment to the NRI.
• This TDs on purchase of property from NRI is required to be deducted irrespective of the transaction value of the property. Even if the property value is less than RS 50 lakhs – This TDS is required to be deducted.
• When an NRI sells property, the buyer is liable to deduct TDS @ 20% (plus applicable cess and surcharge) In case the property has been sold before 2 years (reduced from the date of purchase) a TDS of 30% (plus applicable cess and surcharge) shall be applicable.
• NRI can apply for Lower TDS deduction certificate form Income Tax department, in that case TDS will be deducted on the Capital gains and not on the sale consideration.
• Since the Property is purchased from a NRI, Buyer is required to obtain TAN under section 203A of the Income Tax Act, 1961 before deducting TDS. TAN can be obtained by filling up the Form 49B.
• Buyer to deposit TDS online in Challan no 281 through this link https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp within 7 days from the end of the month in which the TDS is deducted.
• Buyer to issue form 16A to Seller after filing TDS return in form 27Q

WAYS TO SAVE CAPITAL GAIN TAX:

1. Upon long term capital gain on the sale of house property by the NRI, the capital gain tax can be saved if the total capital gain on sale is invested in purchase of another property either one year before the sale or 2 years after the sale of your property or constructed within three years of the date of transfer. It is mandatory that this new house property must be situated in India. The exemption under section 54 shall not be available for properties bought 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 /completion of construction. Only 1 house property can be purchased or constructed from the capital gains to claim this exemption.
2. Invest in bonds for up to Rs. 50 lakhs issued by National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC). These are redeemable after 3 years and must not be sold before the lapse of 3 years from the date of sale of the house property. – SECTION 54EC

NOTE: If the capital gain is not invested till the due date of filing India tax return (31 July), you may deposit the amount of capital gain in a Capital Gains Account Scheme (not later than the due date of filing your India tax return) and subsequently withdraw this amount for re-investment in a new residential house within the stipulated period. If the entire amount is not reinvested or not deposited in the scheme, the remaining portion of the capital gain will be taxable.

IMPACT OF DOUBLE TAX AVOIDANCE AGREEMENTS (DTAA): An NRI may claim a credit in his country of residence with respect to taxes paid in India as provided in the relevant DTAA.