Navigating the complexities of taxation on the sale of immovable property by non-residents is a crucial aspect of real estate transactions. The Income Tax Department provides comprehensive guidelines to ensure a transparent and lawful process. Non-residents are obligated to pay income tax on capital gains arising from the sale of immovable property, with the classification of short-term or long-term contingent upon the holding period. Understanding the nuances of defining non-residency, computing capital gains, and leveraging exemptions is pivotal for individuals involved in such transactions. From the intricacies of tax deduction at source (TDS) to the special features of non-resident taxation, this guide aims to shed light on the essential aspects, facilitating informed decision-making in adherence to Indian tax regulations. As the real estate landscape evolves, this comprehensive overview aims to empower non-residents with the knowledge required to navigate the intricate tax terrain seamlessly.
Taxation of Sale of Immovable Property by Non Residents
TAXABILITY ON SALE NON-RESIDENTS
Income Tax Department
Central Board of Direct Taxes
Taxability on Sale of Immovable Property by Non-Residents
> Non Residents to pay income tax on capital gains on sale of Immovable Property(land/building/Land or building both).
> Period of Holding
:- less than 24 months-Short Term Capital Gains.
:-more than 24 months- Long Term Capital Gains.
> Tax to be deducted by Buyers on payment to Non-Residents.
Q.1 Defining a Non-resident.
Ans. Residential status of an individual is determined as per his period of stay in India during the relevant financial year i.e. the period from 1st April to 31st March.
Non-resident is not a resident. An individual is a resident, if his/her presence in India is:-
(I)182 days or more in the financial year, or
(ii) 60 days or more during the relevant financial year and 365 days or more during the four years immediately preceding the relevant financial year.
Q.2 How are Capital Gains computed in case of sale of an Immovable Property?
Ans. Capital gain on the sale of immovable property is calculated with the following formula:
|
Short-Term Capital Gains |
Long-Term Capital Gains | ||
| Full Value of Consideration (*) | M | Full Value of Consideration (*) | A |
| Less: Expenditure incurred in connection with such sale of the Immovable Property | N | Less: Expenditure incurred in connection with such sale of the Immovable Property | B |
| Less: Cost of Acquisition (**) |
O | Less: Indexed (****) Cost of Acquisition | C |
| Less: Cost of Improvement, if any (***) | P | Less: Indexed (****) Cost of Improvement, if any | D |
| Less: Deductions under sections 54/54EC/54F etc. | E | ||
| Taxable Capital Gains (Taxed as per the normal rates of taxation) | CG=M -N-O-P | Taxable Capital Gain (Taxable as per special rate of 20%) | CG =A-BC-D-E |
(*) Full value of consideration means sales consideration or the value adopted or assessed or assessable by any Authority of a State Government(i.e. the Stamp DutyValue), whichever is higher.
(**)Cost of acquisition means the purchase price of the asset or its fair market value as on 01.04.2001at the option of the assessee.
(***) Cost of Improvement means all expenditure of capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property.
Does not include the interest claimed earlier as deduction under the head house property.
(****) Indexed Cost is considered to give the taxpayer the benefit of inflation. The Financial Year 2001-02 is now taken as the base Year and the Government has come out with a Cost Inflation Index(i.e. with 2001-02 as the base Year with index of 100. It is computed as follows:
Cost of Acquisition X CII of the Year of Sale
CII of the Year of Acquisition
Q.3 Can a Non-Resident claim exemption / deduction from capital gains to reduce his tax liability?
Ans. Yes;
(i) By investing in another residential house (section 54).
(ii) Transfer of land used for agricultural purposes (section 54B).
(iii) Compulsory acquisition of land and building (section 54D).
(iv) Investment in specified bonds (section 54EC).
(v) Investment in units of a specified fund (section 54EE).
(vi) Investment in residential house (section 54F).
(vii) Investment in start-up company (section 54GB).
Q.4 Are there any special Features of NRI Taxation on Sale of immovable Properties?
Ans. Yes;
(i) Non-availability of slab benefit:
(flat rate of tax @20% in case of non-residents).
(ii)Tax Deduction at Source:
Tax is required to be deducted by the purchaser, under Section 195 of the Income Tax Act,1961from the amount of Sale Consideration payable to the non- resident.
(iii) DTAA Provisions:
If the rates prescribed for taxation of capital gains in the DTAA are less than the 20% rate or the slab rate, then tax will be deducted at that rate.
(iv) Lower Tax Deduction Procedure:
Both the payer and the payee, as the case may apply for deduction of tax at a lower rate.
Q.5 Is the non-resident taxpayer required to file return of income?
Ans. If total income of the taxpayer including capital gains is taxable, the taxpayer is required to file his return of income.
Q.6 What are the rules for repatriation of proceeds of sale of immovable property?
Ans. The outward remittance by non-residents are guided by the provisions of the Foreign Exchange Management Act(FEMA), 1999 and procedures laid down by the Reserve Bank of India.
Q.7 What are the procedural and reporting requirements as per the Income Tax Rules, 1962 in case of remittances?
Ans. (I) Rule 37BB of the Income Tax Rules specifies that the remitter is required to furnish information to the authorised dealer in Form No. 15CA while sending remittance to a non-resident. (‘Authorised dealer’ means an entity licensed by the RBI to release foreign exchanges).
(ii) The information is Form No. 15CA is required to be furnished electronically on the website of Income Tax Department and printout of the said form is to be submitted to the authorised dealer, prior to remitting the payment.
Disclaimer: This brochure should not be construed as an exhaustive statement of the law.
For details reference should always be made to the relevant provisions in the Acts and the Rules
(Republished with amendments)
