Investment

Published: November 21, 2023
Updated: November 21, 2023

Navigating Tax Implications for Non-Residents: Selling Ancestral Property in India

Understanding Tax Obligations for Non-Residents

As a non-resident planning to sell an ancestral property in India, it's crucial to comprehend the tax implications associated with such transactions. Whether the property is in Mumbai or any other location, the tax obligations remain consistent.

Long-Term Capital Gains: Unveiling the Basics

The sale of an inherited property, held for over 24 months, falls under the category of long- term capital gains for both residents and non-residents. The fundamental factor in calculating these gains is the cost of acquisition.

Determining Cost of Acquisition: Key Considerations

In the case of inherited property, the cost of acquisition is established as the price paid by the previous owner. For properties acquired before April 1, 2001, the cost is pegged to the fair market value as of that date. This valuation can be determined using applicable rates, such as circle rates or stamp duty rates, or through a valuation report from a registered valuer.

Mitigating Tax Liability: Investment Options

Once the fair market value is determined, it is crucial to factor in the cost inflation index of the year of sale. The disparity between the sale price and the indexed cost constitutes the long-term capital gains, subject to a flat tax rate of 20%. Non-resident sellers have the option to reinvest these gains in residential property or specified capital gains bonds within the stipulated period to mitigate tax liability.

Buyer's Obligations: Deducting Tax at Source

Buyers are obligated to deduct tax at 20% on computed long-term capital gains if the seller provides documentary evidence of the cost. Failure to furnish proof may lead to a 20% deduction on the entire sale consideration. Non-resident sellers with no other taxable income in India are subject to a 20% tax on the capital gains, as they cannot offset this against the basic exemption limit.

Navigating the Tax Landscape with Precision:

Understanding the tax landscape is crucial for non-residents selling ancestral property in India. From calculating long-term capital gains to exploring investment options, a strategic approach can help mitigate tax liabilities. Navigating these intricacies ensures a smoother transaction process, regardless of the property's location in the country.