NRIs who live abroad for most of the time are unable to maintain and manage their purchased or inherited properties in India. They, therefore, sell them. The tax implications of selling properties are very confusing. There are many queries of NRIs as to whether the sale proceeds can be taken back abroad or not or at what rate will their capital gains be taxable. So here is all information you need to know about capital gain tax on properties.
What are capital gains?
Profits or gains arising from transfer of a capital asset are called “Capital Gains” and are charged to tax under the head “Capital Gains”.
NRIs who are selling house property which is situated in India have to pay tax on the Capital Gains. The tax that is payable on the gains depends on whether it’s a short-term or long-term capital gains.
Long-term capital gain
When a house property is sold, after a period of 2 years (Reduced from 3 years to 2 years in Budget 2017) from the date it was owned then it is a long-term capital gain. Long-term capital gains are calculated as the difference between sale value and indexed cost of purchase. Indexed cost of purchase is nothing but the cost of purchase adjusted to inflation.
Long-term capital gains are taxed at 20% with indexation.
Short-term capital gain
When a house property is held for a period of 2 years or less from the date it was owned then it is a short-term capital gain. Short-term capital gains are calculated as the difference between sale value and cost of purchase.
Short term gains shall be taxed at the applicable income tax slab rates for the NRI based on the total income which is taxable in India for the NRI.
Tax implications for NRIs are also applicable in the case of inheritance. If an NRI inherits property in India, he would not have to pay any taxes when he gains ownership of the property. However, capital gains from the sale of inherited property shall be liable to tax. In case the property has been inherited, the date of purchase of the original owner has to be considered for calculating whether it’s a long-term or a short-term capital gain. In such a case the cost of the property shall be the cost to the previous owner.
When an NRI sells a property, the buyer is liable to deduct TDS @ 20%. In case the property has been sold before 2 years (reduced from the date of purchase) a TDS of 30% shall be applicable.
Can the NRI take the sale proceeds to his/her country of residence?
NRIs are allowed to repatriate or bring their sale proceeds of property sold in India to the country of residence. However, the limit to the amount brought from India is $1 million per calendar year, including all other capital account transactions.
Any money brought from outside for the purchase of property can be repatriated or if the property is purchased from the NRIs FCNR account or NRE account then only the amount used to purchase the property can be repatriated. Example if an NRI purchased a property worth $60000 in India and sold the same after holding it for a period of 5 years at a gain of $10000. So the NRI will be allowed to repatriate only $60000 and not $70000.
If the property was acquired out of the NRI’s rupee resources or the loan was repaid by close relatives of the NRI in India, the sales proceeds are credited into the NRI’s non-resident ordinary (NRO) account. Each financial year an NRI is allowed to repatriate an amount of up to $ 1 million from the balance in his NRO account.