Tax treatment on property transactions for NRIs

property transactions for NRIs

Sometimes it’s good to know the tax treatment on property transactions, which depends on your tax status and account for capital gain. In the country like India the taxation of an individual is in directly proportion to the residential status that is dependent on the presence on that particular individual in the country. However; in India we can classified the residential status of an individual as;

1. Resident in India:

1. RNOR (Resident but not ordinarily a resident)
2. ROR (Resident and ordinarily a resident)

2. NRI (Non Resident in India)

An individual will be treated as the resident of India if he/she will be able to satisfy any of the following conditions;

1. In any particular financial year, individual should stay in India for more than 182 days.

OR

1. Individuals should stay in country for more than 60 days in the relevant tax year and it should be more than 365 days in total. On the basis of next 4 tax years of immediately preceding, his or her residential status will be determined.

If any individual is not able to fulfill any of the above mentioned condition so he will be known as the NRI (Non Resident in India).

Any resident individual in India will be treated as the RNOR (Resident Not Ordinarily a Resident) in our country, if he or she will be satisfy any of the below mention conditions;

If an individual is Resident Not Ordinarily a Resident (ROR) in India in any given tax year, so he will be taxed on his total worldwide income in India. Apart from that if same individual is also a resident in some other country and both countries have signed a DTAA (Double taxation Avoidance Agreement), so his residential status will be determined by his netting effect in the relevant country as per law of that country. However; if any NRI will sell his property in India, so the taxation on capital gains will be same as it applies on the Resident Individuals. The only different to be buyer in India is that you will be liable to deduct TDS with the rate of 30 per cent if the property sold is held for the period of less than 3 years and 20 per cent, if the property sold is held for the period of more than 3 years. However; as NRI you will get the exemption under Sec 54 of Income Tax Act. If you will sale your property after 3 years, as NRI you will be liable to get the benefit under Sec 54 of Income Tax Act which states that investment of the capital portion in the property of other person for the period of 1 year after the date of sale or for two years before the date of sale or construction on the property 3 years from the date of sale of the current property.

How to take the benefit of tax exemption?

However; budget for the year 2015 – 2016 has made it clear that to get the benefit of exemption individual have to purchase or construct one house property from the capital gains of the property because that gain from the sale must be utilized to purchase a property in India.

 If individual is selling the property in other country:

If you will sale property in US, UK, Canada or in any other country, so it would be subject to capital gain based on the individual’s residential status in that country for particular financial year (when property is sold) and immediate preceding for the period of the 7 years to determine that individual is ROR or RNOR. If individual will qualify as the NR or RNOR in that relevant financial year  when he has sold the property, so that gain will be not liable for tax in India and he can retain whole amount in the in the overseas bank account. If he will deposit the capital gain in Indian bank account, so his gain will be treated as the taxable in India.

If you are Ordinarily a resident of India and you have stayed in India for 729 or more days in the preceding 7 years in regards to the current Financial year, so his global income shall be taxable in India, no matter from which source he is earning the money. Therefore all the gains which will arise from sale of property in the foreign country would be subject to tax in India with the additional benefits which will be available under the DTAA between India and that particular country. However; you can reinvest the capital gain in another property as well as in specified bonds as per the rules and regulation of the Sec 54 of the Income Tax Act. And rest of the balance amount which will be for the long terms capital gain will be subject to tax at the rate of 20. 6 per cent if the assuming income will exceed from basic tax exemption limit.