20% TDS on taxable long-term capital gains of an NRI is selling house
I moved to Australia on a Permanent Resident status on 3 July 2016. I had come to India for nearly a month in November 2016 for some work. Before 3 July 2016, I lived and worked in India. I am selling my flat in India. Will the buyer deduct 20% TDS? Will I be considered an NRI? The sale value is Rs51 lakh. I bought the house 4 years ago and its cost to me now is about Rs51 lakh.
The determination of residential status in India is based on physical presence in India in the current financial year and preceding 10 financial years. Assuming your physical presence in India is less than 182 days during the relevant financial year, you will qualify as non-resident in India during the relevant financial year.
Under the India income-tax law, if the seller qualifies as an NRI during the relevant financial year, the buyer is required to deduct 20% TDS (plus applicable surcharge and education cess) on taxable long-term capital gains on sale of immovable property.
Sale of property in India will be taxable in the year of sale. Any immovable property held for a period of more than 24 months is classified as long-term capital asset. In case of a long-term capital asset, taxable capital gain will be net sale proceeds less indexed cost of acquisition (i.e. adjusted as per cost of inflation index or CII) less indexed cost of improvement. Long-term capital gain is taxable at 20% (plus applicable surcharge and education cess).
The long-term capital gain can be claimed exempt from tax to the extent it is re-invested in India in specified bonds or a residential house in India. The new residential house should be purchased within 1 year before or 2 years after the date of transfer or constructed within 3 years of date of transfer. There are certain restrictions, however, on the sale of a new house bought and amount of investment made in bonds.
If the capital gain remains un-invested till the due date of filing of India tax return (31 July), you may put the amount of capital gain in a capital gain account scheme (not later than the due date of filing your India tax return) and subsequently withdraw this amount for re-investment. If the entire amount is not reinvested or not deposited in the scheme, the remaining portion of the gain will be taxable.
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Sonu Iyer is tax partner and people advisory services leader, EY India