Introduction: Navigating the complexities of property transactions in India as a Non-Resident Indian (NRI) involves understanding the intricate web of regulations and tax nuances. Central to this process is the residency status of the seller, a pivotal element in India’s property tax framework. This article aims to simplify the details surrounding residency status and its profound impact on tax matters for NRIs engaged in property transactions.
Resident Seller:
According to the Income Tax Act of 1961, a resident seller must meet specific criteria. Residency status is determined by either a 182-day stay in India during the financial year or a 60-day stay in the current fiscal year, combined with 365 days or more in the preceding four financial years. Meeting either condition categorises the NRI as a resident seller for tax purposes in India.
Non-Resident Seller:
A non-resident seller doesn’t meet the residency criteria mentioned earlier.
1. NRIs spent lower than 182 days in the current financial year.
2. NRIs spend less than 60 days in India in the current financial year and less than 365 days in the previous four financial years. This classification marks them as a non-resident seller in the Indian tax domain.
1. Tax Implications for Resident Sellers: For resident sellers, the tax scenario involves several aspects, with capital gains tax taking centre stage.
Capital Gains Tax:
Profits from property sales exceeding two years of ownership incur a 20% tax rate, with the added benefit of indexation.
Short-term gains (properties held for two years or less) attract taxation at applicable slab rates.
TDS (Tax Deducted at Source):
In transactions surpassing Rs. 50 lakhs, buyers must deduct 1% TDS from the sale consideration before paying the seller.
2. Tax Implications for Non-Resident Sellers: Non-resident sellers follow a similar tax treatment path, although with nuanced differences.
Capital Gains Tax:
Long-term gains (property held for more than 2 years) are subject to a 20% tax, along with indexation benefits.
Short-term gains align with applicable slab rates.
TDS (Tax Deducted at Source):
Buyers dealing with non-resident sellers must adhere to a higher TDS rate, set at 20% with applicable surcharge and cess of the sale consideration.
Exemptions for Agricultural Land Sales:
It’s crucial to note exemptions that may apply to both resident and non-resident sellers in agricultural land transactions. However, the complexities of these exemptions require careful consideration, prompting the recommendation to consult tax professionals or chartered accountants.
Conclusion: Understanding the seller’s residency status is crucial for NRIs in Indian property transactions, shaping the fiscal landscape. Varied tax implications and TDS rates for residents and non-residents underscore the necessity for a thorough understanding. In property transactions, a thorough understanding of residency status helps NRIs to make wise decisions, laying the groundwork for a seamless property sale process in India.
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About the Author: CA Arun Tiwari, a Chartered Accountant and former EY employee, serves as the Chief Consultant of the NRI Desk and Influencer Desk at AKT Associates. He specialises in offering consultancy services tailored for NRIs and is dedicated to creating educational content to raise awareness within the NRI community.
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