Sale of House Property And its Tax Implications

Law:

As per Income tax act 1961 Long-term capital gain arising from sale of a capital asset is exempt under Section 54/54F if invested in purchase or construction of a house property, subject to certain conditions.

To get the captain gains exemption

i).The assesse needs to purchase the new residential house within a period of one year before or two years after transfer of the original house.

ii).For under-construction properties, the construction needs to be completed within three years from the date of transfer of the original house.

It has now been clarified by Finance minister Arun Jaitley that the investment for getting capital gains benefit should be made in one residential house property situated in India, not abroad. This amendment will apply in relation to the assessment year 2015-16 and subsequent years.

QUERY:

1).Is it possible to use property sale amount to clear of the primary mortage in US, with out calling for any         tax implication?

Ans: As per income tax act it is clearly stated that Capital gain from sale of house property. has to re-invest in house property only to claim exemption.

2).How this transaction affects my capital gain tax or any other tax?

Ans: This sale of house property is capital gain.

As per Income tax act  rules, long-term capital gains on sale of a property held for three years, attracts 20 per cent tax. Advance tax also liable to pay on such capital gain. Exemptions are granted under certain conditions.

3).Do NRI/PIO/OCI have to file return in India for their property rental income  and Capital Gains Tax?

Ans: The Government of India has granted general permission for NRI/PIO/OCI to buy property in India and they do not have to pay any taxes even while acquiring property in India. However, taxes have to be paid if they are selling this property. Rental income earned is taxable in India, and they will have to obtain a PAN and file return of income if they have rented this property. On sale of the property, the profit on sale shall be subject to sec 9 capital gains. If they have held the property for less than or equal to 3 years after taking actual possession then the gains would be short term capital gains, which are to be included in their total income as tax as per the normal slab rates shall be payable and if the property has been held for more then 3 years then the resultant gain would be long term capital gains subject to 20% tax plus applicable cess.

4).How does the Double Taxation Avoidance Agreement work in the context of tax on income and Capital Gains tax paid in India by NRI?

Ans:  India has DTAA’s with several countries which give a favorable tax treatment in respect of certain heads of income. However, in case of sale of immovable property, the DTAA with most countries provide that the capital gains will be taxed in the country where the immovable property is situated. Hence, the non-resident will be subject to tax in India on the capital gains which arise on the sale of immovable property in India. Letting of immovable property in India would be taxed in India under most tax treaties in view of the fact that the property is situated in India.

5).How does Double Taxation Avoidance Agreement work in the context of CGT paid in India on the foreign tax treatment?

Ans: In case the non-resident pays any tax on capital gains arising in India, he would normally be able to obtain a tax credit in respect of the taxes paid in India in the home country, because the income in India would also be included in the country of tax residence. The amount of the tax credit as also the basis of computing the tax credit that can be claimed are specified in the respective country’s DTAA and is also dependent on the laws of the home country where the tax payer is a tax resident

Repatriation of funds :

Q1. What are the rules governing the repatriation of the proceeds of sale of immovable properties by NRI/PIO as prescribed by the Reserve Bank of India?

(a) If the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels/by debit to NRE/FCNR(B) account, the amount to be repatriated should not exceed the amount paid for the property:

      (i)In foreign exchange received through normal banking channel or 

   (ii) By debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR(B) account.Repatriation of sale proceeds of residential property purchased by NRI’s/PIO’s out of foreign exchange is restricted to not more than two such properties. Capital gains, if any, may be credited to the NRO account from where the NRI’s/PIO’s may repatriate an account up to USD one million, per financial year,

(b) If the property was acquired out of Rupee sources, NRI/PIO may remit an amount up to USD one million, per financial year, out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance.The NRI/PIO may use this facility to remit capital gains, where the acquisition of the subject property was made by funds sourced by remittance through normal banking channels/by debit to NRE/FCNR(B) account.

Are there any exceptions? 

Yes, there are two exceptions: 

(a) If your taxable income consisted only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, you do not have to file your tax returns. . 

(b) If you earned long term capital gains from the sale of equity shares or equity mutual funds, you do not have to pay any tax and therefore you do not have to include that in your tax return

Tip: You may also file a tax return if you have to claim a refund. This may happen where the tax deducted at source is more than the actual tax liability. Suppose your taxable income for the year was below but the bank deducted tax at source on your interest amount, youcan claim a refund by filing your tax return. 

Another instance is when you have a capital loss that can be set-off against capital gains. Tax may have been deducted at source on the capital gains, but you can set-off (or carry forward) capital loss against the gain and lower your actual tax liability. In such cases, you would need to file a tax return

Q2).What’s the best way to file tax returns?

Ans. Traditionally, you could file your return either by giving a power of attorney to someone in India or by sending your form and documents to a tax expert in India who would then file returns on your behalf.