TDS 20% ON NRI SELLING PROPERTY IN INDIA
There is considerable confusion regarding the tax implications for NRIs who want to sell any house property they may have in India. This article explores how much tax is payable and TDS deductible for NRIs wishing to sell property in India.
NRIs selling house property located in India must pay tax on capital gains. The tax payable on gains depends on whether it's short-term or long-term capital gains.
When a house property is sold, there is a long-term capital gain after 2 years (Reduced from 3 years to 2 years in Budget 2017) from the date it was owned. If it's held for 2 years or less, there's a short-term capital gain.
Tax implications for NRIs also apply to inheritance. If the property is inherited, consider the original owner 's purchase date for calculating whether it is a long-term or a short-term capital gain. In such a case, the property 's cost will be the previous owner 's cost.
How much tax payable?
Long-term capital gains are taxed at 20 percent, and short-term gains are taxed at the applicable NRI income tax slab rates based on the total NRI income taxable in India.
Deductible TDS
When an NRI sells property, the buyer may deduct TDS @ 20%. If the property was sold before 2 years (reduced from purchase date) a 30 percent TDS will apply.
How to save capital gains tax?
NRIs may claim exemptions under section 54 and section 54EC on long-term capital gains from sale of household property in India.
Tax implications NRI
Section 54 exemption
It's available when there's a long-term capital gain on NRI house property sales. The property may be self-occupied or let out. Please note – not the entire sale receipt, but the amount of capital gains. Of course, your purchase price of the new property may be higher than the amount of capital gains.
However, your exemption is limited to total on-sale capital gain. You can also buy this property one year before sale or two years after sale of your property. You may also invest gains in building a property, but construction must be completed within 3 years from the date of sale.
In the Budget for 2014-15, it was clarified that only ONE house property can be purchased or constructed from the capital gains to claim this exemption. It is also mandatory from the evaluation year 2015-16 (or fiscal year 2014-15) that this new house property be located in India. The exemption under section 54 is not available for properties purchased or built outside India to claim this exemption. (This exemption may be withdrawn if you sell this new property within 3 years of purchase).
If you were unable to invest your capital gains until the filing date (usually July 31st) of the financial year in which you sold your property, you may deposit your gains in a PSU bank or other banks as per the Capital Gains Account Scheme, 1988. And in your return, as an exemption from your capital gains, you don't have to pay tax on it.
Section 54F exemption
It is available when selling any capital assets other than a residential property has a long-term capital gain. To claim this exemption, the NRI must purchase one house property within one year of the transfer date or 2 years after the transfer date or build one house property within 3 years of the transfer date. This new house must be located in India and should not be sold within 3 years of purchase or construction.
In addition, the NRI should not own more than one house property (except the new house) and the NRI should not buy or build any other residential house within 2 years. Here the entire sale receipt must be invested. If the entire sale receipt is invested, the capital gains are fully exempted otherwise the exemption is permitted proportionately.
Exemption is also available under Section 54 EC
If you can save your long-term capital gains tax by investing in certain bonds. To this end, bonds issued by India's National Highway Authority (NHAI) or Rural Electrification Corporation (REC) were specified. These are redeemable after 5 years (before 2018, it was 3 years) and must not be sold before 5 years (before 2018, it was 3 years) from the house sale date. You can't claim this investment under any other deduction. You are allowed to invest in these bonds for a period of 6 months – although you will have to invest before the return date to claim this exemption. Budget 2014 specified that you can invest up to Rs 50 lakhs in these bonds in a financial year.
The NRI must make these investments and show the buyer relevant proofs to ensure that TDS is not deducted from capital gains. The NRI can also claim excess TDS deducted when returning and claim a refund.
NRIs selling house property located in India must pay tax on capital gains. The tax payable on gains depends on whether it's short-term or long-term capital gains.
When a house property is sold, there is a long-term capital gain after 2 years (Reduced from 3 years to 2 years in Budget 2017) from the date it was owned. If it's held for 2 years or less, there's a short-term capital gain.
Tax implications for NRIs also apply to inheritance. If the property is inherited, consider the original owner 's purchase date for calculating whether it is a long-term or a short-term capital gain. In such a case, the property 's cost will be the previous owner 's cost.
How much tax payable?
Long-term capital gains are taxed at 20 percent, and short-term gains are taxed at the applicable NRI income tax slab rates based on the total NRI income taxable in India.
Deductible TDS
When an NRI sells property, the buyer may deduct TDS @ 20%. If the property was sold before 2 years (reduced from purchase date) a 30 percent TDS will apply.
How to save capital gains tax?
NRIs may claim exemptions under section 54 and section 54EC on long-term capital gains from sale of household property in India.
Tax implications NRI
Section 54 exemption
It's available when there's a long-term capital gain on NRI house property sales. The property may be self-occupied or let out. Please note – not the entire sale receipt, but the amount of capital gains. Of course, your purchase price of the new property may be higher than the amount of capital gains.
However, your exemption is limited to total on-sale capital gain. You can also buy this property one year before sale or two years after sale of your property. You may also invest gains in building a property, but construction must be completed within 3 years from the date of sale.
In the Budget for 2014-15, it was clarified that only ONE house property can be purchased or constructed from the capital gains to claim this exemption. It is also mandatory from the evaluation year 2015-16 (or fiscal year 2014-15) that this new house property be located in India. The exemption under section 54 is not available for properties purchased or built outside India to claim this exemption. (This exemption may be withdrawn if you sell this new property within 3 years of purchase).
If you were unable to invest your capital gains until the filing date (usually July 31st) of the financial year in which you sold your property, you may deposit your gains in a PSU bank or other banks as per the Capital Gains Account Scheme, 1988. And in your return, as an exemption from your capital gains, you don't have to pay tax on it.
Section 54F exemption
It is available when selling any capital assets other than a residential property has a long-term capital gain. To claim this exemption, the NRI must purchase one house property within one year of the transfer date or 2 years after the transfer date or build one house property within 3 years of the transfer date. This new house must be located in India and should not be sold within 3 years of purchase or construction.
In addition, the NRI should not own more than one house property (except the new house) and the NRI should not buy or build any other residential house within 2 years. Here the entire sale receipt must be invested. If the entire sale receipt is invested, the capital gains are fully exempted otherwise the exemption is permitted proportionately.
Exemption is also available under Section 54 EC
If you can save your long-term capital gains tax by investing in certain bonds. To this end, bonds issued by India's National Highway Authority (NHAI) or Rural Electrification Corporation (REC) were specified. These are redeemable after 5 years (before 2018, it was 3 years) and must not be sold before 5 years (before 2018, it was 3 years) from the house sale date. You can't claim this investment under any other deduction. You are allowed to invest in these bonds for a period of 6 months – although you will have to invest before the return date to claim this exemption. Budget 2014 specified that you can invest up to Rs 50 lakhs in these bonds in a financial year.
The NRI must make these investments and show the buyer relevant proofs to ensure that TDS is not deducted from capital gains. The NRI can also claim excess TDS deducted when returning and claim a refund.
