The Dividend Pirate

Here’s some good information that I found on rediff. This article is relevant to you if you have bought investment property in India and are planning to sell it and want to know about the tax implications.

Question by Samant:

I am based in the United States since March 2007 and am an NRI from a legal perspective. We had bought a house (jointly in my and my wife’s name) way back in April 2004 (at that point, we were Indian residents). We paid the money for the house through our own funds plus a rupee loan from a bank. Now we want to sell the property and have the following questions:

1. Can we sell the property? What are the tax implications of selling the property? It was bought for Rs 34 lakh (Rs 3.4 million) and we invested around Rs 7-8 lakh (Rs 700,000-800,000) in furnishing and refurbishing the property. We expect to sell this for around Rs 70 lakh (Rs 7 million). How much tax will we need to pay?

2. Do the sale proceeds need to be transferred to a Non-Resident Ordinary account only? Does the NRO account need to be in joint name of my wife and me (we both own the property jointly)?

3. Can I repatriate the funds to the US received through the sale of the property after paying off the loan? Please explain in detail.

Answer by A N Shanbhag, the highly respected investment guru, and his son Sandeep Shanbhag

1. Yes, you may sell the property. You will be earning long-term capital gains since your holding period is over 36 months. Long-Term Capital Gain (LTCG) is to be computed by deducting from the full value of the consideration i) any expenditure incurred in connection with the transfer; ii) indexed cost of acquisition; and iii) indexed cost of improvement. Indexed cost is the cost multiplied by the index of the year of sale divided by the index of the year of acquisition.

LTCG is taken as a separate block and charged to tax at a flat rate of 20.6 per cent.

2. Yes, the sale proceeds have to be parked in an NRO account, preferably a joint one.

3. Master Circular /0402006-07, dated July 1, 2006, makes it possible for an NRI or a PIO (Person of Indian Origin) to remit as much as $1 million per calendar year for bona fide purposes out of the sale proceeds of assets held in NRO accounts.

He should have acquired the assets in question, out of rupee resources when he was in India or by way of legacy/inheritance from a person who was a resident in India. Sale proceeds of immovable property are eligible for remittance.

The remittance can be effected only when it is sought for all bona fide purposes to the satisfaction of the Authorized Dealer. An undertaking by the remitter and a certificate by a chartered accountant in the format prescribed by the Central Bureau of Direct Taxes vide their Circular 10/2002, dated October 9, 2002, have to be produced.

It is necessary to file Form-A2, a declaration by the individual and a certificate from an accountant, and undertaking for payment of income tax, in the specified format. A no-objection-certificate from the Income Tax Department will be useful, but not necessary.

capital gains» India» NRE» NRI» NRO» taxes» taxes on investment property»

Popularity: 9% [?]

You might also be interested in reading the following articles,

• Tax Brackets
• Using your Home Equity

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.