Rules for filing income taxes broadly same for NRIs and residents
The minimum exemption limit for NRIs for filing income tax return (ITR) is Rs 2.5 lakh, across ages; NRIs above 60 years don’t get higher exemption
I am based in Kenya and am selling a house in Hyderabad, which I had bought in 2007. How will long-term capital gains (LTCG) be taxed?
Sale of a capital asset such as a house results in capital gains. When a property has been held for more than 2 years, the gains are referred to as LTCG. Since you purchased this property in 2007, the gains shall be long term for you.
The Income Tax Act has laid down the procedure for calculating long-term gains. For this purpose, capital gains shall be sale proceeds less indexed cost of acquisition. Indexation of cost is done by applying CII (cost inflation index). This is done by multiplying the cost or the purchase price by CII of the year of sale and dividing it by the CII of the year of purchase. CII is available for each financial year.
The LTCG thus computed shall be taxed at a special rate of 20%. However, NRIs can also claim exemption on the capital gains, by purchasing another property in India, or by investing the gains in capital gains bonds. If a property is bought, it must be situated in India, it can be purchased 2 years before or 3 years after the sale of the property in question. Note that capital gains must be invested and not the entire sale proceeds. You may also choose to invest these in capital gains bonds. In case you are not able to conclude the purchase of a house property, you may park the capital gains in a Capital Gains Account Scheme with a bank and then later invest them. This deposit must be made before the due date of filing of your tax return. If you fail to invest them at a later date, you will have to pay capital gains tax.
Also, the buyer is bound to deduct taxes before he pays you the consideration. He is supposed to deduct taxes at 20% on your gains and not on the sale consideration. To ensure that the buyer is deducting taxes on the gains only, you could approach your income tax officer to determine the value of capital gains and furnish the same to the buyer to avoid excessive deduction of tax in India.
Also Read: Why you should keep ITR-related papers
I am an OCI resident in India. For estate planning purposes, I set up a revocable living trust in the US and transferred our financial assets to the trust (stocks and bonds). Does the act of funding the trust create tax incidence in India? I understand future income and capital gains of the trust are taxable on passthrough basis. Funding a trust in itself is not taxable in the US.
You have mentioned you are a resident of India for the purpose of income tax and you have been transferring financial assets to a revocable living trust in the US. This trust appears to have been created purely for personal reasons. Further, as this is a revocable trust in the US, we understand that the beneficiaries to the trust cannot enjoy uninterrupted access to the income and assets in the trust as long as you are alive. They cannot claim ownership over the property in the trust until you are alive. Hence, the mere act of funding the trust (actual transfer of asset not taking place) would as such not have any tax implications in India on either you or on the beneficiaries. Further, since you continue to retain control over such property, any income arising out of it would be taxable in your hands only in India.
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Archit Gupta is founder and chief executive officer, ClearTax.
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