An NRI Has To Pay Capital Gains Tax On Sale Of Property In India

For a resident, his global income is taxable in India whereas for a non-resident, all the income, which accrue or arise in India or is received from a property situated in India becomes taxable in his hand in India. Since the property is situated in India, the NRI has to pay tax on the capital gains on sale of the property. The capital gains will be taxed at 12.50 per cent if the property is held for more than 24 months, else the same will be treated as short-term capital gain (STCG) and will be taxed at slab rate.

If the NRI wants to claim exemption from payment of LTCG, he can do so by investing the capital gains for acquisition of one residential house property in India, or by investing the LTCG in capital gains bonds of specified financial institutions, such as Rural Electrification Corporation (REC), National Highway Authority of India (NHAI), Power Finance Corporation (PFC) or any other institute notified by the government.

If the NRI does not want to make the investments, he will have to pay LTCG tax at 12.50 per cent. A non-resident is not entitled to avail of the benefit of setting off shortfall in his basic exemption against LTCG. So, in case the NRI who is also a non-resident for tax purpose does not have any other taxable income in India, he/she will have to pay tax on the entire LTCG and will not be able to avail of the benefit of basic exemption limit of Rs 2.50 lakh.

The provision of deduction of tax at 1 per cent under Section 194-IA of the Income-tax Act, 1961 is applicable when the seller is a resident and when the value of the property exceeds Rs 50 lakh. In your case as far as a resident Indian is concerned you can discharge your liability by deducting tax at 1 per cent on Rs 29 lakh.

As far as the non-resident co-owner is concerned, you are required to comply with provisions of Section 195 of the Income-tax Act, 1961, which provides that the person paying the money to the non-resident has to deduct tax at source at the rates in force.

The tax rate is 12.50 per cent on LTCG, if you can get the documents for working out the taxable income based on the cost of purchase and date of purchase in case the property was held for more than two years by the seller. In case the holding period is more than 2 years you will have to deduct tax at 30 per cent plus applicable surcharge.