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I am a non-resident India (NRI) and I have a property in India. I am planning to sell the property as I am planning to buy a higher-value property. Will I have to pay Tax Deducted at Source (TDS)? Can I apply for nil TDS certificate? What do I need to do? Kindly explain.
Taxability on sale of immovable property: Sale of property situated in India will be taxable in the year of sale of property.
Any immovable property held for a period of more than 24 months is classified as a long-term capital asset, in which case the taxable capital gain will be sale proceeds less indexed cost of acquisition (that is, adjusted as per cost of inflation index or CII) less cost of improvement less cost of transfer. Long-term capital gains (LTCG) are taxable at 20% plus surcharge, if applicable, and education cess. Short-term capital gains are calculated as the difference between the sale proceeds and the cost of acquisition (no indexation benefit is available) at respective slab rates.
The LTCG may be claimed as exempt from tax to the extent it is re-invested in a residential house:
(a) purchased 1 year before the date of transfer
(b) purchased 2 years after the date of transfer
(c) constructed within 3 years after the date of transfer
Further, the exemption is available only if the residential house is purchased and constructed in India.
There are other options also available to claim LTCG as exempt from tax. LTCG can be claimed exempt to the extent it is reinvested in specified bonds in India. But there are certain restrictions on the quantum of investment made in bonds. If the LTCG is not invested until the due date of filing of tax return in India (31 July), you may put the amount of capital gain in a Capital Gain Account Scheme (CGAS) with a bank (not later than the due date of filing returns), and subsequently withdraw this amount for reinvestment in India.
If the entire amount is not reinvested or deposited in CGAS, the remaining portion of the gain will be taxable. Tax can be either paid by way of advance tax in four instalments (15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March) or before filing a return along with interest by 31 July.
TDS on sale of immovable property: Under India’s income-tax laws, any payment made to a non resident is liable for TDS, if such payment is chargeable to tax in India. In such a case, the buyer will deduct TDS at 20% in case of LTCG or at 30% in case of short-term capital gains.
Alternatively, you may apply for ‘Nil’ or ‘TDS at reduced rate’ order from the income-tax officer. The income-tax officer, upon your application, will issue a certificate stating that ‘Nil’ TDS or ‘TDS at reduced rate’ will be applicable for the said transaction.
I left for Dubai in 2015 and I work here now. However, I have not been filing taxes in India till now. I have Rs7 lakh in one bank account and Rs3 lakh in another bank account—there have been no transactions from the time I left the country. I believe I gain interest on the deposit. How will this be taxed? And should I file returns, just for this purpose? I don’t have any property or anything in India. Please help.
Under the India income-tax law, you will qualify as non resident in India. As a non resident, only your India-sourced income (that is, income received and/or earned in India) will be taxable in India.
Your salary income received outside India will not be taxable in India. The interest income from your bank accounts in India will be taxable in India. However, you are required to file an income-tax return and pay taxes in India only if your total taxable income exceeds Rs2.5 lakh for the financial year 2017-18.
You may still file an India income-tax return to claim any refund of taxes withheld by the bank on your interest income.
Sonu Iyer is tax partner and people advisory services leader, EY India.
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