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
|Less: Indexed Cost of Acquisition
|Less: Expenses wrt Sale (eg. broker fee)
- 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 36 months 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. 3 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.
||Acquisition and Holding
- NRIs/PIOs are allowed to acquire or hold immovable property without any RBI approval.
- Acquisition can be by way of purchase, gift or inheritance.
- Acquisition can be for any number of immovable property, to the extent it is for investment purpose (and not as real estate business activity).
- Agriculture land, farm house and plantation property cannot be acquired or hold by NRIs/PIOs, except if so acquired by way of inheritance.
- Foreign citizens of foreign origin are not allowed to purchase immovable property.
- NRIs/PIOs are allowed to transfer the immovable property by way of sale or gift, without any RBI approval.
- Agriculture land, farm house and plantation property can be transferred by NRIs/PIOs to Indian citizens only.
||Mode of Payment
||Payment for purchase of Immovable Property can be made:
- Remittance from abroad through normal banking channels
- Through funds held in NRE/FCNR/NRO account
- Loan from Authorised Dealer Bank/Housing Finance Institutions/Indian Company Employer
||Repatriation of Sale Proceeds
||Repatriation is allowed to the extent of:
- Forex brought into India or amount debited to NRE/FCNR account, for the purchase of property and
- 1 Million US Dollars per Financial Year
- NRIs/PIOs are allowed to rent out the immovable property without any prior approval of RBI.
- Rental Income is allowed to be credited to NRO/NRE account, and also allowed to be directly remitted abroad.
||Citizenship Related Restriction
- A person, who is citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran, China, Nepal or Bhutan, is not allowed to acquire/hold/transfer an immovable property, without a prior approval of Reserve Bank of India.