My son who is an American citizen wants to sell a property in India. How will it be taxed?


My son is an American citizen. He owns residential property here in India. He wants to sell it. Could you tell us about the related tax implications? Also, if he does not sell it and give it to his brother, what will be the tax consequences?

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The residence status of the person will define tax liability in India. If the person is a Non-Resident Indian (NRI) in accordance with the provisions of the Income Tax Act, he or she is liable for income tax on the income accrued or generated in India. Therefore, if your son owns a residential property in India and wants to sell it, he will have to pay capital gains tax on the gains from that sale. However, tax liability will depend on whether the gain is a short-term or long-term capital gain.

If an NRI sells a residential property after 24 months (reduced from 36 months to 24 months in the 2017 budget) from the date of ownership, the proceeds from the sale of that property will be considered a long-term capital gain. However, if the residential property is held for 24 months or less, the gain will be short-term appreciation. The tax implications for NRIs also apply in the event of inheritance.

Long-term capital gains are taxed at 20% plus cess, and short-term gains are taxed at the flat rate applicable to NRIs on the basis of total income, which is taxable in India.

However, when an NRI sells a property, the buyer is required to deduct a 20% TDS. And if the good is sold before 24 months, a TDS of 30% is applicable. The NRI can file an ITR and claim a refund of excess tax withheld at source.

To answer the second part of the question, if NRIs offer a property to an Indian citizen, when the fair market value of the property exceeds ??50,000, it is taxable in the hands of the recipient of the donation. However, if the donation is given to relatives (defined in the Income Tax Act), it is not taxable either for the recipient or for the donation. Therefore, if an NRI donates residential property to its brother, it is not taxable.

(Query answered by Archit Gupta, Founder and CEO, Clear. Send your questions to [email protected])

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