Many non-resident Indians (NRIs) will be visiting India this summer and selling a home may be on some people’s to-do lists. So, it’s pertinent to understand that when a property in India is sold, the profits are taxed for both residents and non-resident Indians. However, the amount of tax due is determined on the basis of short-term or long-term gains.
“A long-term capital gain occurs when a dwelling property is sold after two years (down from three years in Budget 2017) from the start of possession. The capital gain is considered short-term if it is kept for two years or less, according to Archit Gupta, founder, and CEO of tax portal Cleartax. “If the property is inherited, NRIs would have to pay tax,” he said further.
While dealing with an inherited property, it’s critical to know the original owner’s purchase date. This aids in determining the ownership tenure and hence the capital gain categorization. “The cost to the prior owner will be regarded as the current cost of the property in the event of an inherited property,” Gupta explained.
How Much Tax Do I Owe?
Short-term profits are taxed at the relevant NRI income tax slab rates depending on total taxable income in India. Long-term capital gains are subject to a 20% tax rate.
When an NRI sells a property, the buyer must subtract 20% tax at the point of sale (TDS). The TDS is greater at 30% if the property is sold before two years (reduced from the date of acquisition).
How to Reduce Capital Gains Taxes?
NRIs can also benefit from numerous exemptions on long-term capital gains from the sale of a home in India.
“You have the option of purchasing the (new) property one year before or two years following the sale of the older property. You may also invest the gains in the development of a property, but the work must be finished within three years of the selling date,” Gupta added. This exemption will be revoked if you view the new property within three years of purchasing it.
Only one dwelling property can be acquired or developed from capital gains to claim this deduction, according to Budget 2014. In addition, the new residence must be in India (this rule came into being at the beginning of the assessment year 2015-16 or financial year 2014-15). Section 54 of the Income Tax Act of 1961 does not apply to properties purchased or built outside of India.
Exemption under section 54F
Exemption under section 54EC
Furthermore, an NRI can invest up to Rs 50 lakh in these bonds in a single financial year. To guarantee that the buyer does not withhold TDS, the NRI must provide the buyer with the required documents. Also, claim reimbursement for any excess TDS deducted on your tax return.