• Capital Gain/Loss on Sale of Rental India House Property by US based NRI

Please clarify on the below when a US Citizen (person of indian origin) owns a house property located in India and he/she resides and works in USA and files his/her US tax return and India ITR every year :

(1) How can such person calculate capital gain or loss on sale of that house property which has been rented out in the past and such person has always been paying tax on its rental income in the annual income tax return every year in India as well in USA ?

(2) Is there no tax on capital gain if such person reinvests the gain in another house property in india or there in USA ?

(3) I know that such person can buy another new house property to make capital gain of sale of old house property tax-free, but such a person can purchase the new house in how much time in advance before the sale or how much time after the sale of such house property ?

(4) Do such person need to maintain any documents or records to show the capital gain etc. ?

(5) How to get the today's value/cost of that sold rental house property to minus from today's sale price of property in order to find if any capital gain or loss after like 20 yrs of possession ?

(6) Will tax will be payable in India as well in USA if there is any capital gain and will the amount of capital gain be different in India ITR and US Tax Return because of different rules & methods of calculation in both the countries ?
Asked 23 days ago in Capital Gains Tax

(1) If gain/loss is long term gain then Net sale consideration minus Indexed cost of acquisition. If short term then Net sale consideration minus cost of acquisition. Net Sale consideration is sale consideration minus expenses incurred on transfer of property (i.e. brokerage etc.)

 

(2) Yes you are correct. You can invest in another house property or in bonds. Investment in bonds is limited to Rs. 50 lacs and the time limit is 6 months from the date of transfer of the house property.

 

(3) In case of purchase: within 2 years from the date of transfer. within 1 year before the sale of the property. In case of construction it is 3 years from the date of sale.

 

(4) Sale deed, Purchase proof, bank statements, cost of improvements proofs, transfer expenses proofs etc.   

 

(5) Through cost inflation index factor

 

(6) Tax would be payable in India. For US tax filings contact local CPA.

 

(7) As the seller is NRI, buyer is liable to deduct TDS@20.8% (excluding surcharge) on the sale consideration. For lower/NIL deduction you have to apply for lower deduction/NIL TDS certificate. For remittance outside India, Form15CA/CB have to be filed.

 

For detailed discussion you may opt for phone consultation.

Vivek Kumar Arora
CA, Delhi
4476 Answers
606 Consultations

5.0 on 5.0

Dear Sir,

 

Hope you are doing well.

 

1. Capital gains shall be calculated by reducing indexed cost of acquisition from the sale proceeds. The following formula is to be used: Long-term capital gain = full value of consideration received or accruing – (indexed cost of acquisition + indexed cost of improvement + cost of transfer), where: Indexed cost of acquisition = cost of acquisition x cost inflation index of the year of transfer/cost inflation index of the year of acquisition. Indexed cost of improvement = cost of improvement x cost inflation index of the year of transfer/cost inflation index of the year of improvement.

 

2 &3 . You can claim an exemption from LTCG u/s 54 of the income-tax Act if the LTCG is reinvested in a new residential property located in India within the specified time frames. Where the new property is purchased, the gain is required to be reinvested either within 1 year prior to sale date or 2 years after the sale date. Where the new property is constructed, the time period prescribed for the reinvestment is within 3 years from the date of sale of the original asset. Alternatively and/or additionally, you can invest the capital gains of up to Rs 50 lakhs in bonds of NHAI or REC, within six months of its accrual and get the exemption u/s 54EC.

 

4.Purchase deed and sale deed of the said property. Details of expenses , as well as proof of payment Details of investment , together with proof of making such investments. Etc.

 

5. Through Indexation. Indexation refers to recalculating the purchase price, after adjusting for inflation index, as published by the Income-Tax authorities. Formula for computing indexed cost is (Index for the year of sale/ Index in the year of acquisition) x cost. For example, if a property purchased in 1991-92 for Rs 20 lakh were to be sold in A.Y. 2009 -10 for Rs 80 lakh, indexed cost = (582/199) x 20 = Rs 58.49 lakh. And the long-term capital gains would be Rs 21.51, that is Rs 80 lakh minus Rs 58.49 lakh.

 

6. Since you are an NRI the buyer would deduct tax (TDS/ withholding tax) at the rate of 20% plus cess & surcharge and deposit it with the government. If you don't want the buyer to deduct the tax, you can get the lower/Nil TDS certificate from the income tax department.

 

We can assist you end to end procedures. It is advisable to take a phone consultation for detailed discussion.

Payal Chhajed
CA, Mumbai
5170 Answers
236 Consultations

5.0 on 5.0

Dear Sir,

 

1. It shall be Long term capital gains as property is held for more than 24 months. Capital gains would be sale consideration (which would be Stamp duty value of the property if that is more than 110% of the consideration) minus the indexed cost of acquisition. You would also get deductions for the cost of improvements (expenditure or additions to the house over the year). Indexed cost of acquisition is the cost of acquisition x cost inflation index of the year of transfer/cost inflation index of the year of acquisition.

2)  You can claim an exemption u/s 54 from capital gains if the gains are reinvested in a new residential property located in India.

3) The gain is required to be reinvested either within 1 year prior to sale date or 2 years after the sale date, in case you are purchasing new house property. If you are constructing the house, you can reinvest gains within 3 years from the date of sale. You can also invest the capital gains of up to Rs 50 lakhs in bonds of NHAI or REC, within six months of its accrual and get the exemption u/s 54EC. You have to invest in Capital gains account scheme until you utilize the amount. 

4) You need to maintain documentation like purchase deed and sale deed of the said property in case your case is picked for scrutiny.

5. You can get today's value of house by multiplying cost of acquisition/cost of improvement with Indexation cost of current year/Indexation cost of the year of purchase/improvement 

6. Yes the amount would be taxed separately in US as per the US principles. You can claim the credit of taxes paid in India. The buyer would not be aware about the amount on which tax has to be deducted so he may deduct taxes @ 20% on entire sale consideration. It is advisable to obtain lower/nil deduction certificates. 

 

We can assist you with all the procedures. Do reach out for detailed consultation.

Prerna Peshori
CA, Pune
86 Answers

5.0 on 5.0

Hi

 

1. Capital gain calculation would be simply sales consideration less indexed cost of acquisition

2. Exemption can be claimed for reinvestment in house property in India or section 54EC bonds

3. Within 1 year before the sale or within 3years after the sale

4. Yes

5. Your cost of acquisition of property needs to be considered

6. The calculations would be separate for both countries as per the applicable laws. You will get credit of the taxes paid in India while filing tax returns in the US.

 

Lakshita Bhandari
CA, Mumbai
5657 Answers
807 Consultations

5.0 on 5.0

1) file:///C:/Users/Dell/Downloads/cost-inflation-index.htm

 

2) It is the buyer responsibility. Without TDS deduction funds cannot be remitted abroad.

 

3) Time limitation for processing of application is within 30 days from the end of the month in which application is filed. 

 

4) Difference in due dates of filing of ITR will not effect TDS credit. Under Form 1040 (US ITR) you have to fill Schedule D, the same way you have to fill schedule for FTC (foreign tax credit). Retain Indian ITR form filed alongwith TDS certificate.

 

5) Section 54 and section 54EC of Income tax Act,1961.If the amount cannot be invested before the due date of filing of ITR you can deposit it in capital gain account scheme and avail exemption.

 

6) No

 

Vivek Kumar Arora
CA, Delhi
4476 Answers
606 Consultations

5.0 on 5.0

Hi

 

Since there are many queries, it is advisable to discuss the same over a phone consultation. 

Lakshita Bhandari
CA, Mumbai
5657 Answers
807 Consultations

5.0 on 5.0

Dear Sir,

 

1) Yes the CII is available on incometaxindia.gov.in

2) In case the buyer fails to deduct TDS, he shall be liable to penal consequences. He would have to pay interest and penalties if he fails to deduct unless you furnish the details in your ITR and pay due taxes

3) We could help you obtaining NIL/lower deduction certificates

4) We can help you claiming credit in US

5) It has to be deposited in CGAS account. You need to maintain sale deed and records of receipts

6) You cannot claim depreciation on house property

 

Do reach out for detailed consultation. 

Prerna Peshori
CA, Pune
86 Answers

5.0 on 5.0

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