A visual representation showing two timelines for property holding periods: one for less than 2 years (short-term) and one for more than 2 years (long-term). The short-term column shows “30% tax” and the long-term column shows “20% tax with indexation benefits.” Use an illustration of real estate, tax forms, and money calculations.
Contents
Understanding Capital Gains Tax:
1. Short-Term Capital Gains (STCG):
- Definition: If the property is held for less than two years before the sale, it is considered a short-term capital asset.
- Tax Rate: The gains from such sales are taxed at 30% (excluding surcharge and cess). These gains are added to the NRI’s total income and taxed according to the applicable slab rates.
- Computation: The gain is calculated by subtracting the cost of acquisition and improvement from the sale price.
2. Long-Term Capital Gains (LTCG):
- Definition: If the property is held for more than two years before the sale, it is considered a long-term capital asset.
- Tax Rate: The gains from such sales are taxed at 20% with indexation benefits (excluding surcharge and cess). Indexation adjusts the purchase price of the property for inflation, reducing the taxable amount.
- Computation: The gain is computed by subtracting the indexed cost of acquisition and Improvement from the sale price.
Tax Deducted at Source (TDS):
When an NRI sells property in India, the buyer must deduct TDS before making the payment. The applicable TDS rates are:
- For Short-Term Capital Gains: TDS is deducted at 30% of the sale consideration.
- For Long-Term Capital Gains: TDS is deducted at 20% of the sale consideration.
Buyer’s Responsibility:
- Obtain TAN: The buyer must obtain a Tax Deduction and Collection Account Number (TAN).
- Deduct TDS: The buyer should deduct TDS at the applicable rate from the sale consideration.
- Deposit TDS: The deducted TDS must be deposited with the Income Tax Department using Form 26QB within 30 days from the end of the month in which the TDS was deducted.
- Issue TDS Certificate: The buyer should issue a TDS certificate (Form 16A) to the NRI seller within 15 days of depositing the TDS.
Lower TDS Certificate:
NRIs who believe their total tax liability is lower than the TDS being deducted can apply for a lower TDS certificate. The process involves:
- Application: Submit an application to the assessing officer in India, along with supporting documents like the sale agreement, purchase details, and computation of capital gains.
- Approval: If approved, the assessing officer will issue a certificate specifying a lower TDS rate.
- Implementation: Provide this certificate to the buyer, allowing them to deduct TDS at the reduced rate.
Capital Gains Exemption:
NRIs can claim exemptions on long-term capital gains under certain sections:
1. Section 54:
- Eligibility: If the capital gains are reinvested in another residential property within two years of the sale or if a new property is constructed within three years. The new property must be in India.
- Conditions: The exemption is proportional to the amount of capital gains reinvested.
2. Section 54EC:
- Eligibility: If the capital gains are invested in specified bonds (e.g., NHAI or REC) within six months of the sale.
- Holding Period: The investment should be held for at least five years.
- Limit: Maximum investment limit is Rs. 50 lakh.
Repatriation of Sale Proceeds
NRIs can repatriate the proceeds from the sale of property, subject to certain conditions:
- Form 15CB: Obtain a certificate from a chartered accountant in Form 15CB, certifying that taxes have been paid.
- Form 15CA: Submit Form 15CA online on the Income Tax Department’s website, along with the Form 15CB certificate.
- Bank Submission: Submit these forms to the bank for approval to facilitate the repatriation process. NRIs can repatriate up to USD 1 million per financial year, provided all taxes are duly paid.
Filing Income Tax Return:
NRIs must file an income tax return in India if they have sold property during the financial year. This return should detail the property sale, capital gains, and taxes paid. Filing the return ensures compliance with Indian tax laws and allows for claims of any eligible refunds.
Conclusion:
Navigating the tax implications for NRIs selling property in India requires a clear understanding of capital gains tax, TDS requirements, potential exemptions, and the repatriation process. By adhering to these regulations and maintaining proper documentation, NRIs can ensure a smooth and compliant transaction, ultimately maximizing their financial returns. Proper planning and consulting with tax experts can further simplify the process and help avoid any legal complications. By staying informed and proactive, NRIs can make informed decisions and successfully manage the sale of their property in India.