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Home >Money >Q&a >No exemption for investment made outside India

I am a resident and citizen of Australia and an NRI. I am looking to sell some land in India. Are there any exemptions which we can avail to minimize taxes? I understand that one can reinvest the capital gains into property and that, too, overseas. Appreciate if you could kindly provide any details, particularly whether we can invest in property in Australia. Are you familiar with the DTAA with Australia and any corresponding local LTCG applicable and criteria? If we have purchased the property ( land) prior to 2001, what indexation and property value can we take into consideration for the purpose of calculating the LTCG?

—Name withheld on request

Assuming that the asset is not agricultural land, the sale of any immovable property in India will be taxable in the year of sale. Any immovable property (being land or building, or both) held for a period of more than 24 months is classified as long-term capital asset. Long-term capital gain (LTCG) is taxable at 20% (plus applicable surcharge and health and education cess).

LTCG may be claimed as exempt if the sale proceeds less expenditure are invested in one residential house in India (to be either purchased within one year before or two years after or constructed within three years from the date of transfer). This exemption is available if you do not own more than one residential house, other than the new residential house in India, on the date of transfer. Also, for the exemption to continue, the new house that has been purchased or constructed cannot be transferred within a period of three years.

Exemption is not available if the investment is made outside India. If the land was acquired prior to 1 April 2001, the cost can be substituted with fair market value (but not exceeding the stamp duty value on 1 April 2001) if such fair market value is higher than original cost. The cost of improvement i.e., capital expenditure incurred for making additions or alterations to the property incurred after 1 April 2001 can also be considered in capital gains computation

As you are a citizen of Australia, the LTCG on sale of land in India may also be taxable in Australia, as per domestic tax laws therein. In such case, you may claim foreign tax credit in Australia for taxes paid in India against doubly taxed income as per the application provisions of the Double Taxation Avoidance Agreement between India and the Australia.

Sonu Iyer is tax partner and people advisory services leader, EY India.

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