Photo: iStock
Photo: iStock

NRIs have to pay TDS of 20% on LTCG made from property sale

As per the income tax Act in India, if an NRI sells a house within 2 years of holding it, 30% TDS will apply to the short-term capital gains

I am a co-owner of a house with my brother. At the time of owning the house, I was a resident of India. Now I am an NRI. If we sell the house now, will the proceeds be taxed differently for him and me? Can I transfer the money abroad?

—Santosh Bisht

Capital gains from sale of property will be taxed similarly for both of you. The only difference will be TDS deduction. Your brother will have to pay TDS at 1% on sale proceeds as he is a resident. But your portion of total sale proceeds may be subject to 20% TDS if they are long term, and 30% if they are short term.

Gains from sale of a capital asset are considered long term if property is sold after 2 years of holding, and short term if it is sold within 2 years of holding. If you plan to invest your gains or do not want TDS deducted, you can get a certificate from the income tax officer and submit to the buyer.

NRIs are allowed to repatriate up to $1 million in a financial year. They must submit a relevant certificate from a chartered accountant for this purpose. Such gains may also have to be reported in the country of your residence.

I have inherited my mother’s properties and other assets in India. I live in Australia and have NRI status. Will I need to pay taxes on the sales proceeds?

—Priyanshu Kumar

Yes, you can sell properties and other assets inherited by you from your mother. Gains on sale of property and other capital assets is taxed under the head capital gains in your income tax return. You must pay tax on gains made from sale of these assets. Capital gains will be calculated on them as if these were your own assets. Capital gains are basically sale proceeds less indexed cost of acquisition. The cost of acquisition of the owner shall be the cost of acquisition for you. You can also index the cost according to the year of purchase of the original owner.

These gains are classified as long-term capital gains (LTCG) when the property is sold after 2 years of holding, and short-term capital gains when sold within 2 years of holding. Other assets may have a separate period for classification as long term and short term. This bifurcation is important as it helps identify the applicable tax rate. Long-term gains from sale of property are taxed at 20%, while short-term gains are added to your total income and taxed according to the slab applicable to you.

As per the income tax Act in India, tax must be deducted at source (TDS) on a payment made to an NRI. So, when you sell a property in India, the buyer has to deduct TDS at 20% if your gains are long term, and 30% if your gains are short term. You may apply for a nil TDS certificate to your income tax officer if you do not want TDS to be deducted or plan to claim capital gains exemption by investing your gains as allowed in the income tax Act.

You must file an income tax return to report these transactions, gains made, and capital gains exemption claimed, whether or not any tax is payable by you. These gains may also have to be reported in your country of residence.

Archit Gupta is founder and chief executive officer of ClearTax. Queries and views at mintmoney@livemint.com.

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