I am an NRI, I want to sell an ancestral property in India. The income tax rule explained

I am an NRI having an Indian passport. I want to sell the property of my ancestors in India. The property was purchased in 1961. It is now mine by legal inheritance. I want to sell the property now. Will there be liability? Am I eligible for indexing? Is the TDS applicable in this case? If so, what percentage?

Whether you are an NRI or an Indian resident, the tax provisions for the sale of inherited property are the same. Since the property was acquired in 1961, any profit made on its sale will be taxed as a long-term capital gain. For the purposes of calculating capital gains, you will need to take the fair market value of the property on April 1, 2001 as the cost. You must obtain an appraisal report of the fair market value of the property as of April 1, 2001 from a certified appraiser.

The fair market value cannot exceed the stamp duty value of the property on that date. This fair market value of the property must be indexed with the cost inflation index for the year of the sale. The net sale price after deduction of incidental expenses to the sale and reduced by the indexed cost is your long-term taxable capital gain on which 20% tax (plus surcharge and disposal) is payable.

Yes, a tax deduction will apply on this transaction. Since you are a non-resident for tax purposes, the buyer is required to deduct withholding tax in accordance with Section 195 @ 20% on taxable capital gains regardless of sale value of the property. For the buyer to correctly calculate the taxable amount of long-term capital gains, you will need to share the relevant documents such as the appraisal certificate and the expenses incurred for the sale transaction. If you want the buyer not to deduct tax at source, you can contact the jurisdictional tax officer to issue you a certificate of non-withholding tax at source.

You can save long-term capital gains if you buy a residential property within a specified time frame and/or invest the indexed long-term capital gains in capital gains bonds within six months of selling the property.

Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on Twitter

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