Property sale proceeds will be taxable in the same year

Capital gains on sale of long-term capital assets are subject to a tax rate of 20% (excluding surcharge and education cess)


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I am an Australian citizen but was looking to sell our ancestral house in my place of birth in Raipur. What will be the tax liabilities of this sale?

—Sarvesh Singh

Sale of property situated in India will be taxable in the year of sale. Any immovable property held for a period of more than 36 months is classified as a long-term capital asset. Capital gains on sale of long-term capital assets are subject to a tax rate of 20% (excluding surcharge and education cess). For an ancestral property, the holding period would be calculated from the date of acquisition by the original owner.

The method for calculating the taxable capital gain will be net sale proceeds less indexed cost of acquisition (i.e. adjusted as per cost of inflation index or CII) less cost of improvement.

For example, say, an inherited property is sold on 20 October 2015 for Rs.40 lakh, which was originally purchased on 10 July 1981 for Rs.3 lakh. The capital gains will be calculated as follows:

Sale value: Rs.40 lakh

Indexed cost of acquisition: Rs.3 lakh x 1,081 (CII for financial year (FY) 2015-16) / 100 (CII for FY82) = Rs.32.43 lakh. And therefore, the long-term capital gain (LTCG) amounts to Rs.7.57 lakh

The capital gain can be claimed exempt to the extent it is reinvested in India in specified bonds or a residential house (to be either purchased within two years or constructed within three years of transfer of the land).

There are certain restrictions, however, on the sale of new house bought and the quantum of investment made in these bonds.

If the capital gains remain un-invested until the due date of filing tax returns in India (i.e. 31 July), you may put the amount of capital gains in a Capital Gains Account Scheme (CGAS) with a bank (not later than the due date of filing your India tax return), and you can then subsequently withdraw this amount for reinvestment purposes. However, in case the entire amount is not reinvested or not deposited in a CGAS, the remaining portion of the gain will be taxable.

Tax on LTCG can be either paid via advance tax in three instalments (30% by 15 September, 60% by 15 December and 100% by 15 March) or before filing of tax returns by self-assessment tax along with interest by 31 July.

However, a special provision is available to non-resident Indians (NRIs) with investment income and LTCG as the only sources of income. These individuals are exempt from filing a tax return in India if tax is deducted at source on such income.

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