Do you own an immovable asset in India? Are you anticipating any property transfer by Will in India from your parents? There has been a real estate price boom all over India. Further, many NRIs are buying property in India. The driving factor being increasing forex rates between Indian Rupee & U.S. Dollars. So how does it affect your India taxation, when you sell such property in India? To explain the capital gain scenario in simple terms we have assumed assets sold as second homes. We assume it is not used for business and not let out for rent.
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What happens when you sell Property in India?
The sale of immovable property in India may lead to capital gains or a capital loss. When the asset ownership is above 3 years, you can avail indexation benefit. Indexation is a method to determine asset cost after inflation for a particular year. If property ownership is before 1st April 1981. You must consider acquisition value as of 1st April 1981. Thereafter you can index the buying value to respective indexation for relevant years.
Let’s understand capital gain computation on a property sale with the following.
Example- Property sale value is 100. Sale expenses are 2. Net consideration is 98 (100 -2). The acquisition cost is 10. Indexed cost is 85 (i.e.10*852/100). So the capital gain is 13 (98-85).
In case the property sale price is less than stamp duty value. Then the price difference is capital gains. Stamp duty value gets determined by the Stamp duty authority in India. Further, one can avail “rollover benefit”. It comes under Sec.54 of the IT act. To avail of this benefit, the IT assessee must buy. /construct another residential house. It should get done before 1 year before the property sale date or within 2 years after the sale date of the property. Moreover, the cost of construction or acquisition should be more than capital gains. When you invest less amount than your capital gains, the difference amount gets taxed.
Furthermore, you can avail of capital gain exemption by reinvestment in specific bonds. But the reinvestment limitation is Rs. 50 lakh per financial year. There may be scenarios wherein you may not be able to reinvest in house property or specific bonds. Under such cases, you need to park your capital gains in the CAGS account. It must get done before the IT filing due date for the relevant financial year. CAGS scheme account is the short form for Capital Gains Account Scheme.
The property buyer is liable to deduct TDS-tax deducted at source. The TDS rates vary based on the period of ownership and resident status of the seller. iMaster tax consultants can guide you about your property sale transaction.
What are the details and documents required for LTCG on the property?
Cost of pur-chase along with pur-chase deed. Cost of construction with the date with supporting bills and agreement. Date of pur-chase and sale. PAN card copy. Efiling login & passwords.
In case you are an NRI, then the property sale may be taxable abroad too. You can avoid tax payments on capital gain on the property through income tax exemptions. It is important to determine the cost of property sold to work out the right capital gains. The property sold can be self-owned, inherited, or gifted. You also need to think about ways to remit back the funds back to your resident country abroad when you are an NRI.