Whenever a property is sold to anyone whether an NRI or a resident, taxes are levied. Depending on the duration for which the property was held, the nature of the taxes could be Long Term Tax (where property is held for more than 36 months) or a Short Term Tax (where the property is sold in less than 36 months).
In case of Long Term, the tax is 20% (post indexation) whereas in case of Short Term capital gain is taxed as per applicable income tax slab rates applicable.
TDS applicable on NRIs
While saying a property, an NRI seller has to pay a tax of 20% on the transaction made (the value is 1% in case the seller is a resident. The onus of this tax collection & deposit lies with the buyer).
Ways to Save Capital Gain Tax & TDS
Under Section 54 & Section 54EC, NRIs can claim exemptions from Capital Gain Tax & TDS while selling a property.
Section 54
In order to claim exemption under section 54, following conditions should be met
- A new residential property should be purchased or constructed to claim the benefit
- The property should be a residential property situated in India & should be one single property. It cannot be spread across multiple properties
- The new property should be purchased 1 year before the sale of the property or two years after the sale of the property. In case the new property is under construction, it should be constructed within 3 years from the sale of the property.
- In case the new property is sold within 3 years of purchase, exemption claimed from the sale of the property will be reversed.
Key points to be Noted
- In order to claim full exemption entire capital gains have to be invested
- The property should be bought in the name of the seller
Section54EC
The seller has an option to save long term capital by investing gains in certain type of bonds. These include
- Bonds issued by National Highway Authority of India (NHAI) &
- Rural Electrification Corporation (REC) bonds
Key points
- These bonds have a lock on of 3 years and cannot be redeemed before completion of 3 years from the sale of the property.
- Minimum amount of investment is INR 10,000 and maximum amount is INR 50,000
- The seller is given 6 months to invest in these bonds after the sale of the property. However this investment must be done before the tax filing date.
If a seller makes these investments before selling the property and shows pertinent proof to the buyer, There will be no deduction of TDS and Captial Gain Tax.
