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How you can claim FTC under double tax avoidance treaty for sale of property in UK

If you are an ROR (resident and ordinarily resident) in India, the sale of the UK property shall be taxed in India

I am a resident in India for this financial year. When I was in the UK five years ago, I had purchased a flat there, and now I am planning to sell it. My first query is: can I invest the capital gains from this flat into a property in India? Second query: how is capital gains calculated, and is it the same for Mumbai and other cities? I have to pay capital gains tax in the UK, can that be shown as tax paid in the returns?

—Name withheld on request

We assume that in the current financial year (FY), being the FY of sale of the property, you qualify as a resident and ordinarily resident (ROR), as per Indian tax laws, and you do not qualify as a tax resident of the UK as per their tax laws.

Query one: If you are an ROR in India, the sale of the UK property shall be taxed in India. As it was held for more than 24 months prior to sale, the property will qualify as a long-term capital asset. The gain or loss arising out of the sale would be taxable as long-term capital gains (LTCG) or loss (LTCL) in your hands.

A roll-over exemption from LTCG on the sale of a residential property is available on the following investments, subject to the prescribed conditions and timelines: under Section 54 of the Income-tax Act, by investing LTCG in a new residential house in India; under Section 54EC, by investing LTCG in specified notified bonds; and under Section 54GB, by investing the net consideration in equity shares of an eligible startup.

You can evaluate availing of exemption from LTCG in the modes specified above and subject to satisfaction of the conditions mentioned therein.

Query two: Assuming that the sale will occur entirely outside India, LTCG or LTCL is first calculated in foreign currency, as the difference between net sale consideration (actual sale consideration less brokerage and incidental expenses) and the indexed cost of acquisition (ICoA) and improvement. ICoA of the flat would be calculated as the cost of acquisition or Cost Inflation Index (CII) of the year of purchase multiplied by CII of the year of sale.

The LTCG or LTCL so determined in foreign currency is required to be converted to Indian rupees using the telegraphic transfer buying rate issued by the State Bank of India, as on the last day of the month immediately preceding the month in which the property is sold.

You may evaluate claiming foreign tax credit (FTC) under the India-UK Double Tax Avoidance Agreement (DTAA), for any taxes paid in the UK on the sale of property, subject to the conditions prescribed under DTAA. Also, in case FTC is claimed, in addition to the tax return in India, you are required to file a Form 67 in India, along with the prescribed documents.

Read the full answer on livemint.com/money

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com

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