Sale of Immovable Property, Capital Gains

NRIs acquire immovable property in India. This acquisition is either by way of investment by NRI himself or by way of inheritance from their parents/grand-parents etc. In lots of cases, NRIs wish to sell this immovable property due to two reasons. One it is fetching them good return. And two they are settling outside India, hence, they donot wish to hold this immovable property any more. Consequently, there re lots of sale of immovable property transactions happening by NRIs/PIOs. With this, lots of tax issues arise before them. Certain questions which generally come to their mind are:

  • What is the tax treatment of selling an immovable property?
  • What will be the cost of immovable property acquired by them through inheritance or gift?
  • How will the gain be calculated in case of immovable property acquired long back when prices were very low?
  • What will be the treatment of other related expenses paid to other people (i.e. other than seller)?
  • What is the importance of Stamp Duty Valuation (i.e. Circle Rates of Stamp Duty Valuation Authority)?
  • How the capital gains tax (arising on sale of property) be avoided or reduced?
  • What are the NRI specific TDS provisions wrt acquisition or sale of immovable property?

The same can be understood by understanding the salient features of tax provisions wrt sale of immovable property:

Salient Features wrt Sale of Immovable Property:

  • Profit on sale of immovable property: Being a capital asset, under the Capital Gains chapter, it is a taxable gain technically called as Capital Gains, which is calculated as under:
  • Computation of Capital Gains
    Particulars INR
    Sale Consideration 50 Lac
    Less: Indexed Cost of Acquisition 30 Lac
    Less: Expenses wrt Sale (eg. broker fee) 2 Lac
    Capital Gains 18 Lac
  • Indexation of Cost: Cost of acquisition can be indexed (as per the index provided by CBDT every year), if the immovable property holding period before sale is more than 24 months (two years) ie. Long Term Capital Asset.
  • Immovable Property Acquired By Way of Inheritance/Gift: In case of immovable property was acquired by NRI by way of Inheritance/Gift, then as per the provisions of Capital Gains Chapter the benefits of previous owner (i.e Deceased or Donor) will pass on to the person who acquires such property. Hence, costing, indexation etc benefit will be allowed.
  • Stamp Duty Value: As per the provisions of Section 50C of the Income Tax Act, if NRI sells an immovable property less than the Stamp Duty Value then for the purposes of capital gains Stamp Duty Value shall be considered as Sale Price. Eg. if in above case, Stamp Duty Value of property is INR 60 Lac, then 60 Lac shall be considered as Sale Value and capital gains would be Rs 28 Lac.
  • Tools To Nullify or Minimise Capital Gains Taxation: By adopting certain tax planning tools, capital gains taxes (on sale of immovable property) can be minimise or reduced to nil. Those tools include:
    • Investing in Long Term Specified Bonds (i.e. 5 year lock-in bonds of NHAI/REC)
    • Investing in a new Residential House Property
  • TDS on Sale of Immovable Property By NRIs, PIOs: As per the TDS provisions, buyer of immovable property needs to deduct TDS from the payment to be made to NRIs/PIOs (under the TDS provisions of payment to Non-Residents i.e. Section 195). Hence, sale of immovable property by NRIs/PIOs attract TDS on sale consideration paid to them.