Non-resident Indians or NRIs are required to pay capital gains tax on the income from the sale of any immovable property such as a flat, apartment, building, land etc. Let us take a look at the tax implications of property sales for an NRI home or landowner.
Capital Gains from the Sale of Immovable Property
Before we delve into the TDS (Tax Deducted at Source) part of the tax burden, let us understand capital gains and the tax levied on these capital gains for an NRI seller.
Capital gains are the profit or gain that any seller makes from the sale of a capital asset. A capital asset refers to assets such as land, buildings, real estate properties, as well as other valuable possessions like jewellery or equity. When a non-resident Indian (NRI) sells their property in India and earns a profit due to an increase in asset value, it is considered a capital gain.
When you sell an asset, such as a property, the tax on capital gains depends on how long you have owned it. If the property has been held for less than 24 months, the sale will generate Short Term Capital Gains. If an NRI buys a property in India and owns the property for more than 24 months, the sale will generate Long Term Capital Gains.
Computation of Capital Gains Tax
- The Short Term Capital Gains (STCG) are what the seller gets after deducting the cost of acquisition and the expenditure incurred in connection with the transfer from the sale proceeds.
- Long Term Capital Gains (LTCG) are computed by deducting the indexed acquisition cost, the expenditure incurred in connection with the transfer, and any deductions under Sections 54/54EC/54F from the sales proceeds.
LTCG is taxed at a rate of 20%, while STCG is taxed according to the applicable income tax slab of the seller. An additional surcharge and cess are also levied on these. The following table will give you a clear understanding of the LTCG tax implications on the sale of your immovable property in India.
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Long Term Capital Gains Tax
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Category
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Property Sale Price (INR)
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< 50 lakhs
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50 lakhs - 1 crore
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> 1 crore
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LTCG Tax
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20%
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20%
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20%
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Additional Surcharge
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Not Applicable
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10% of above
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15% of above
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Additional Health and Edu. Cess
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4% of LTCG Tax + Surcharge
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4% of LTCG Tax + Surcharge
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4% of LTCG Tax + Surcharge
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TDS on Capital Gains
According to the current provisions of the Income Tax Act, the TDS of the capital gains tax should be withheld by the buyer at the time of sale and must be deposited to the Income Tax Department. For accurate TDS deduction, the NRI seller should file an application Form 13 with the Income Tax Department. After the computation of the tax, the department will now issue a certificate for TDS, and the seller should share this with the buyer. The buyer will deduct the tax accordingly. If the seller does not apply for this certificate, the buyer should withhold the TDS on the entire sale proceeds as per the table mentioned above.
The buyer's responsible for deducting TDS and submitting the amount to the IT department. The TDS should be mentioned in the Sale Agreement, which is registered during the transfer of property. If the NRI seller fails to produce the capital gains certificate, they can claim a refund of tax upon filing the returns at the end of the financial year.
Exemption on Capital Gains Tax
The Income Tax Act also offers certain provisions through which an NRI who buys property in India can lower their tax burden. If the capital gains from the sale of immovable property are reinvested in buying up to two other land or real estate properties, the capital gains are exempt from taxation. This applies only if the capital gains do not exceed INR 2 crore and the subsequently purchased properties are not sold for three years. Sellers can purchase certain infrastructural bonds that may provide them with partial or complete exemption from capital gains tax.
When an NRI buys property in India, it is usually to obtain a residence in the country or to take advantage of the thriving real estate market and sell the property when it appreciates in value. In these circumstances, it is advisable to seek guidance from a financial advisor specialising in property sales and taxation.
