Non residents are liable to pay income tax on capital gains on sale of immovable property (land/ building / land or building both). If the period of holding of the capital asset is more than twenty four months, it will be taxed as long term capital gains and otherwise, it will be taxed as short term capital gains. Tax is also required to be deducted by the buyer from payment made to non-residents.
1. Who is non-resident under Income Tax Act?
The residential status is determined in every financial year i.e. the period from 1st April to 31st March of the relevant year. An individual is considered to be a resident if he satisfies either of the following two conditions:-
The second condition above is not applicable in the following cases:
Thus, in these cases, an individual will become non-resident only if he has not been in India for a period of 182 days or more during the previous Financial Year.
2. Is capital gains from sale of immovable properties by non-residents taxable in India?
Yes, capital gains from sale of immovable property accrue and arise in India. It is taxable in India.
3. How Capital gains are computed in case of sale of immovable properties?
Capital Gains for immovable properties are calculated in accordance with the following formula:-
|Short Term Capital Gains||Long Term Capital Gains|
|Sales Proceeds *or Stamp Duty Value, whichever is higher||(X)||Sales Proceeds *or Stamp Duty Value, whichever is higher=||(A)|
|Less : Expenditure in connection with transfer =||(Y)||Less : Expenditure in connection with transfer =||(B)|
|Less : Indexed Cost of Acquisition**||(C)|
|Less : Cost of Acquisition ** =||(Z)||Less : Deductions under sections 54/54EC/54F @||(D)|
|Taxable Capital Gain ( Taxable as per normal rates) =||X-Y-Z||Taxable Capital Gain (Taxable as per special rate of 20%) =||A-B-C-D|
* Sales proceeds is called Full Value of Consideration
** Cost of acquisition
As per Notification no. So 1790(e)[no. 44/2017 (F. No. 370142/11/2017-tpl)] dated 5-6-2017, following table should be used for the Cost Inflation Index :-
|SI.||Financial Year||Cost Inflation Index|
4. Is tax required to be deducted at source from the amount payable to the non-resident?
Yes, tax is required to be deducted from the amount payable to the non- resident. There is no threshold value.
[For more details please refer to Taxpayer Information Series Brochure on ‘Sale of Immovable Properties by Non-Residents – TDS at a glance]
5. Can a Non-resident claim exemption from payment of capital gains tax?
Yes, the non-resident can claim exemption as given below:-
i) Exemption from capital gains tax on sale of residential house
(Sec. 54 of I.T.Act, 1961)
ii) Exemption from capital gain on sale of any asset including land:
Capital Gain x Amount Invested
Sale value less expenditure on sales *
[Section 54F of the I.T.Act, 1961]
* Technically called Net Consideration.
iii) Exemption for investment in specified bonds:
[Sec. 54EC of I.T. Act, 1961]
What happens if the owner transfers the ‘new asset’ within three years?
In case the taxpayer sells the newly acquired house on which capital gains tax was claimed exempted, the said exemption will be effectively withdrawn. In case of sale of residential property, if no capital gains was charged earlier, cost of the new property at the incidence of second sale, will be reduced by the amount of exemption. If the cost of the new asset was less than the capital gains, at the incidence of the second sale, its cost price is to be taken as nil.
(Section 54 and 54F)
Capital Gains Account Scheme, 1988
The taxpayers are given the option of purchasing or constructing new asset within two years/ three years from the date of transfer. However,4 where the taxpayer is not able to appropriate the capital gains/ Net consideration (as the case may be) before the filing of return of income,4 he is required to keep the unutilised portion of capital gains/sales proceeds in the Capital Gains Account Scheme maintained by scheduled banks in India and may purchase / construct the property after making withdrawals from the said account.
The unutilised portion of capital gains will be charged to tax as the income of the year in which the three years from the date of transfer expires.
iv). Exemption from Capital Gain on compulsory acquisition of Land & Building or any right in Land & Building forming part of an Industrial undertaking:-
v). Exemption from Capital gains tax on sale of Residential property (a house or a plot of land)
** Eligible start up means a company (or a limited liability partner-ship) engaged in eligible business which fulfils the following conditions, namely-
(a) It is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2021;
(b) The total turnover of its business does not exceed Rs. 25 crores (in the previous year relevant to the assessment year for which deduction under sub-section (1) is claimed); and
(c) It holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government;
“”” New asset in which the investment by the startup has to be machinery and plant other than
(i) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person;
(ii) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house;
(iii) any office appliances including computers or computer software; for a technology driven start up the new asset shall include computers or computer software
(iv) any vehicle; or
(v) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year:
(vi) If the amount of the net consideration is greater than cost of new asset, then amount of exemption will be calculated as under:-
Capital gain x Cost of new asset
Yes, there are some special features as listed below:
As per section 90 of the Income Tax Act’1961, the rates of taxation on taxable income of a non-resident will be as prescribed under the Income Tax Act’1961 or under the DTAA of India with the country of which the non-resident is a resident, whichever is more beneficial to the tax payer. Therefore, 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.
However, for availing the benefit of lower rate of deduction of tax under the DTAA, the non-resident transferor will have to furnish a Tax Residency Certificate to the payer indicating the tax residency of which he is a resident. Under, the provisions of sub-sections (2) & (3) of section 195 the payer or transferor/payee may make an application to the jurisdictional Assessing officer to determine the sum of capital gains on which tax is to be deducted. The application to the AO will be made in the prescribed form.
The amount determined by the AO will be the amount on which tax is to be deducted. However, if no such application is made by the payer or the payee to determine the sum chargeable to tax, the tax will be
Unutilised Tax Relief/Any other relief
Long term capital gain from the single property can be invested only in one property. A Non-Resident Individual or Non-Resident HUF cannot adjust LTCG against the basic exemption limit. Therefore, in the case of Non-Resident even if the taxable income is NIL and he has booked long term capital gain against the capital asset, a Non resident has to pay LTCG tax at the rate depending on the asset class.
7. Depositing of proceeds of sale of immovable property.
Irrespective of source of principal investment (i.e. whether investment was made using existing funds in NRO account (rupee funds) or through funds paid out of NRE/FCNR or external remittances, the entire capital gains / profit must be deposited in an NRO account.
NRIs are permitted to repatriate a total of only / upto USD 1 Million or approx Rs.7 crores per financial year per person (April to March) out of total balance held in their NRO account (which basically refers to income that is not freely repatriable i.e. income that is repatriable but is subject to certain restrictions).
This is the limit that includes all and any kind of repatriable income of the NRI such as :
Hence, any income that is not freely repatriable (as explained in opening points) is subject to this limit.
8. Is the non-resident taxpayer required to file return of income?
If total income of the taxpayer including capital gains is taxable, the taxpayer is required to file his return of income. He may also file return of income if, after considering all his sources of income and investments, it is seen that tax has been deducted at higher rate and he is entitled to refund. If the result of the capital gains is a loss, he is required to file the return within due date in order to carry forward the loss.
9. How foreign remittances, inward and outward are regulated in India?
The outward remittance by non-residents are guided by the provisions of the Foreign Exchange Management Act (FEMA),1999.The procedures are laid down by the Reserve Bank of India through the Master Circulars issued from time to time. For outward remittance, there is compliance requirement by the Income Tax department also.
10. What are the procedures laid down in the Income Tax Act,1961, for outward remittance to non-residents?
The Income Tax Act, 1961 stipulates that tax has to be deducted at source if the payment to the non-resident constitutes income in the hands of the non-resident. It also stipulates a reporting mechanism in respect of payment to non-residents, whether chargeable to tax or not. The Income Tax Rules, 1962 lays down the detailed procedure of the reporting mechanism.
11. What are the reporting requirements as per the Income Tax Rules, 1962 ?
(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 . Commercial Banks, Co-operative Banks, Rural Banks,Full- Fledged Money Changers, Post Offices, all fall within the category of authorised dealers.)
(ii) The information in Form No 15CA is required to be furnished electronically and thereafter, printout of the said form is to be submitted to the authorised dealer, prior to remitting the payment;
(iii) The person responsible for payment to the non-resident, i.e, the remitter, is to furnish the following :