Taxation on sale of House Property by NRIs and related issues

With the unprecedented appreciation in the value of real estate in India over the past two decades several NRIs sell their house property in India and repatriate the sale proceeds abroad instead of gifting it to their close relatives as was the common practice earlier.

Sale of such property attracts Long Term Capital Gains  Tax at the rate of 20% + Surcharge which can go up to 37 % on the tax amount depending upon the amount of capital gain + cess at 4% on the basic tax and surcharge. For short term Capital Gains the normal rates would apply.

The buyer is supposed to deduct tax at source on the entire sale proceeds (not on capital gain only) at the rate mentioned above U / S 195 of the IT Act 1961 even if the sale consideration is below Rs.50 L.

The seller can compute the actual Long Term Capital Gain by deducting the cost of asset, cost of improvement after applying the cost inflation index and claim refund of the excess TDS by filing the IT Return before the due date.

The seller can however apply to the Assessing Officer for issuing a certificate for deducting tax at a lower rate U/S 197 by e-filing Form No 13 duly filled in along with the following documents before sale is closed.

  • Copy of the original purchase deed
  • Registered sale agreement with the buyer
  • Copies of IT Return for the preceding three years
  • An Affidavit
  • Proof/Affidavit of the proposed tax saving investments

Procedures to be followed by the buyer

  • The buyer has to apply for TAN which one can usually get in a few days’ time
  • After obtaining TAN pay TDS and file 27 Q
  • Ensure that the payment is reflected in 26 AS of the seller

Procedure for repatriation of the sale proceeds

The sale proceeds can be repatriated from the seller’s NRO account by e-filing Form No 15 CA and 15 CB duly certified by a Chartered Accountant in practice

Maximum amount that can be transferred in a year shall not exceed One Million USD roughly equivalent to Rs.753 Lakh

Conditions

The house property which the NRI sold should have been held by him for a minimum period of 10 years. The is not applicable in the case of inherited property

Illustration

Year of Sale & Sale consideration A 2020-21 ₹ 6,00,00,000
Year of purchase & Cost B 1995-96 60,00,000
Year & Cost of improvement C 1996-97 10,00,000
Market Value as on 1-4 -2001 D 90,00,000
Year & subsequent Cost of improvement E 2009-10 15,00,000
Indexed Cost of Acquisition (90 lacs x 301/100) F 2,70,90,000
Indexed cost of improvement for Fin./Yr.

2009-10 (15 lacs x 301/148)

G 30,50,676
Total Indexed Cost H=F+G 3,01,40,676
Long Term Capital Gain I=A-H 2,98,59,324
Tax to be deducted (Pl. see Note#1 below) J 1,70,97,600
Actual Long term Capital gain (Pl. see Note#2 below) K 77,63,424
Refund due L=J-K 93,34,176

 

Note#1

TDS = ((6 ,00,00,000 *20%)+37%)+4%)

Note#2

Tax on LTCG= (((2,98,59,324*20%)+25%)+4%)

Note#3

Any temporary relaxation on TDS rates on account of COVI-19 is not considered in this article.

 

 

Author: CA. Jose Zachariah, FCA
 

 

 

 

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