Hi All - I am an NRI residing in US, I have booked an apartment in Hyderabad in 2013 which was completed by the builder and ready for possession by July 2016. I have Paid the builders dues in full (80 Lakhs) with help of a bank loan (45 Lakhs) + personal funding. This apartment was never registered as I could not travel to India since 2016, due to some circumstances I have decided to sell it and found a buyer who is willing to pay 90 Lakhs. The builder is charging 1% of sale value as transfer fees as they have to transfer the ownership to the Buyer, this is builders process. What additionally should the Buyer do here? Deducting TDS, how much etc? What additionally should the Seller do here? I am totally new to this so Please advise the next steps
When was the allotment letter received by you? The date of allotment will decide whether the gains are long term or short term.
The buyer shall have to deduct TDS at the time of payment. The rate shall depend on whether the gains are long term or short term. The same has to be included in the sale deed.
Buyer should TDS @ 20% because you have Long Term Capital Gain (LTCG), nothing other required at sellers point.
you are liable to file your income tax return and can claim refund of such TDS by using Deductions u/s 54,54F or 54EC.
Thank you, is the TDS @ 20% (long term or short term may vary this) on the Capital Gain (in this case 10 Lakhs) or on entire Sale value which is 90 Lakhs? @ Lakshita - Offer of Posession came on June 22 2016.
Allotment letter and offer of possession are different things. If allotment date is not available, this date can be considered.
Considering this, it will be STCG. TDS @ 30% shall be deducted by the buyer. This would be deducted on entire sale proceeds. If a certificate from Income tax officer is obtained for calculation of capital gains, TDS shall be deducted on capital gain amount and not on entire sale proceeds.
@Lakshita - what is an Allotment Letter (is this something confirmed upon booking? if so its Jan 2013) - how can there be a capital gain when the unit is under construction till 2016? Thanks!
Allotment letter by the builder specifies a particular flat to alloted to you. No matter it is under construction, you already hold a right to acquire the property and this is considered as a capital asset and hence liable to capital gain taxes.
Having an earlier date of allotment shall make it a long term capital gain and hence reducing the tax liability and allow certain tax exemptions by way of reinvestments.
Hi,
Buyer will deduct your TDS @ 20% of the sales consideration. However, you can reach out to your assessing officer requesting him to give your lower TDS certificate based on your capital gain.
In any case, excess TDS deposited by the buyer can be claimed as refund while filing the return.
In addition to the answers provided by other experts, I add the following for your information:
1) The sale value is Rs 90 lakhs and the sale proceeds you will be receiving is net of 1% transfer fee on sale proceeds. So your net sale consideration will be Rs 89,10,000/- only. Your actual cost is Rs 80 Lakhs. So your capital gains will be Rs. 9,90,000/- only. Now whether it is Long Term or Short term depends upon when you actually acquired the asset. The letter of allotment gives you right to get the property upon the payment of sums as per schedule given in the letter of allotment. You may stretch it to say it is Long Term Capital Gains, if the date of letter of allotment received is more than 3 years from the date of transfer to the new buyer. Even then, your payments may not be in full at the time of time of receiving the letter of allotment and the actual payments might have been spread over the period from 2013 to 2016, till you were given offer of possession. So there is not much benefit in indexation. Whether the amount of Rs 9.9 Lakhs is a short term capital gain or long term capital gain depends upon how the documentation is done.
2) As the new buyer will be getting transfer of rights from you on the flat booked by you and you may not be party to the sale deed between the buyer and the builder, he needs to deduct tax on the payment made to the builder u/s 194L, as the builder is a resident. However, as he makes the payment to you as a Non Resident, he also need to deduct tax u/s 195, applicable to Non Residents. Otherwise, you will not be able to transfer the sale proceeds to your NRE a/c or any other account in USA.
Hi,
Please check the date of allotment letter, which is issued to you by the builder. It will state the total amount to be paid, the flat being allotted, the area, etc. If the period from this date till the date of sale is less than 2 years, then the property will be treated as a Long Term Capital Asset. Tax on Long Term Capital Gain will be 20% of the capital gain. Since you are a non-resident, the buyer should deduct the entire amount of tax, before the registration of sale deed.
If the asset is a Long Term Capital Asset, then the long term capital gain will be Sale Consideration minus the Indexed Cost of Acquisition. The Indexed Cost of Acquisition is the actual amount invested by you in the flat, as increased by the cost of inflation.
Regards,
Keerthiga Padmanabhan
M.Com., CA, LL.B
Also, there can be capital gain even though the property is under-construction and you have not received the possession of the property. You have a right over the under-constructed property, which is considered as an asset as per Indian tax laws.
Further, as a seller of property, you have the responsibility to file your tax returns in India and offer the capital gains to tax.
If you want to save the 20% tax on capital gains then you can:
1. Buy another property in India for an amount equal or more than the capital gain arising out of the sale of property. If you invest less than the capital gains, then your will be allowed a proportionate exemption.
Or,
2. Invest in Capital Gains Bonds for a period of 3 years upto a maximum of Rs. 50 lakhs.
Hello,
The TDS shall be 20.6% on the entire sale consideration and not only on the capital gains. You can apply for a lower deduction certificate though in order to avoid such an exorbitant withholding tax.
The entire process may take around 30-45 days but will help you save your valuable money not getting stuck with the income tax department.
Feel free to get back/ call back for any further clarifications.
Regards,
CA Rohit R Sharma
BCOM, CA, LLB, Cert. FAFP.
