NRIs wishing to sell their properties in India need to be aware of the taxation on the same. Let us have a look at the tax implications on the sale of property in India concerning the NRIs:
Short-Term Capital Gains Tax
A property owned by an NRI for less than three years is considered as a short-term capital, and the profit made by the sale of these short-term assets is called short-term capital gains tax, and since the profit amount will get added to your income, therefore, the income tax slab will determine the applicable tax.
For people below 60 years of age, if income is:
- Less than Rs. 2.5 lakh then NIL.
- Between Rs. 2.5 lakh and Rs. 5 lakh then 10% of the amount that exceeds Rs. 2.5 lakh.
- Between Rs. 5 lakh and Rs. 10 lakh then 20% of the amount that exceeds Rs. 5 lakh.
- More than Rs. 10 lakh then 30% of the amount that exceeds Rs. 10 lakh
For people between 60 to 80 years of age:
- No tax for income up to Rs. 3 lakh; and
- 10% on income between Rs. 3 lakh and Rs. 5 lakh.
For people above 80 years of age:
- No tax on incomes up to Rs. 5 lakh.
- Above Rs. 5 lakh, taxation for these senior citizens is similar to that of the others.
Long-Term Capital Gains Tax:
If a person owns a property for more than three years, then it is considered as long-term capital. NRIs who wish to sell off a purchased property bought three or more years ago will incur long-term capital gains tax of 20 percent.
Purchased Property: The gains are calculated as the difference between sale value and indexed cost of purchase. Indexed cost of purchase is the cost of purchase adjusted to inflation.
Inherited Property: When an inherited property is to be sold, the date and cost of purchase for purposes of computing the period of holding as well as the cost of purchase is taken to be the date and cost to the original owner.
The country in which the NRI resides is also an important concern. India has signed a Double Taxation Avoidance Agreement (DTAA) with as much as 88 countries with the sole aim to benefit NRIs who are made to pay taxes in both countries. The taxation of NRIs residing in countries having DTAA will India, will depend on the DTAA specified rate or the tax rate in India, whichever is lower.
Section 54 – This section specifies that if an NRI within two years of the sale of residential property (the property must be under his holding for three years or more) re-invests the proceeds into some other residential property, then the profit generated from the sale is exempted from taxation.
Section 54EC – According to this section states, if an NRI after three years from the date of purchase sells a long-term asset (in this case, a residential property) and invests that capital gain in bonds of NHAI and REC within six months of the date of the said sale, he or she will be exempt from capital gains tax. However, the bonds will remain locked in for a period of three years.