I am a UK citizen and I want to sell land I own in India. The sales value of the property is £4 crore. I have held this country for 15 years. What are the tax implications of the sale and what should I be aware of in order to avoid mistakes when filing my income tax return (ITR)? How can I transfer the amount to my UK account? Will I become taxable again?
– Azka Qureshi
Assuming the land is not used for agriculture, property sales in India will become taxable in the year of sale. All real estate (land or buildings, or both) that is held for a period longer than 24 months is classified as long-term capital assets (LTCA). In the case of LTCA, the taxable capital gain is the consideration less the expenses (which are entirely and exclusively incurred in connection with such a transfer) less the indexed acquisition costs (actual acquisition costs adjusted to the inflation cost index or CII). minus the indicated improvement costs. The long-term capital gain (LTCG) is taxable at 20% (plus the applicable surcharge and the drop-out in health and education). While you mentioned that the sales value is of land £4 crore you also need to check the stamp duty value of such a country. If the stamp duty value is more than 10% of the sales value, the stamp duty value will be considered the full value of the consideration to be received from you.
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LTCG can be claimed as tax exempt provided the capital gains from the sale of land in India are reinvested in certain bonds (within six months from the date of transfer). The exemption is limited to up to £50 lakh per fiscal year and the bonds are locked for five years.
Alternatively, LTCG can be claimed as exempt if the proceeds of the sale minus expenses are invested in a residential home in India (to be purchased either within one year before or two years after purchase, or within three years from the date of transfer). This exemption is available if you do not own more than one residence other than your new residence in India at the time of transfer. In order for the exemption to continue, the new home that has been bought or built cannot be transferred within three years from the date of purchase or construction.
If LTCG does not remain invested by the India ITR filing due date (July 31st), you may deposit the capital gains into a Capital Gains Account system or CGAS (no later than the due date of your India ITR filing due date) and then withdraw that amount for reinvestment in a new one Residential building within the agreed period (two or three years depending on the case). If the entire amount is not reinvested or not deposited in CGAS, the remaining LTCG will be taxable.
The tax on LTCG can be paid either in four installments as input tax (15% by June 15, 45% by September 15, 75% by December 15, and 100% by March 15) or before filing the ITR as a Self-tax to be paid. Assessment tax together with interest until July 31st. The obligation to pay an advance tax or self-assessment tax arises if the buyer of the property does not deduct the tax you have to pay.
Under Indian Income Tax Act, if the seller does not qualify as a non-resident in India during the fiscal year in question, the buyer must deduct TDS (source deducted tax) at a set rate (plus applicable surcharge and health and education dropout) taxable capital gain from the sale of real estate. The stated rate is 20% (plus the applicable surcharge and the health and educational dropout) at LTCG.
In your India ITR, you will need to report the sales revenue, cost incurred in transferring, indexed acquisition cost, indexed upgrade cost and LTCG. If an exemption is requested by certain bonds or a new home in India or CGAS, the details of the same must also be reported in the ITR.
Under the Foreign Exchange Control Act, you can transfer up to $ 1 million per fiscal year from the proceeds of a property in India from your non-India based bank account (NRO). Remittance outside India is permitted if proof of purchase is presented along with a Certificate of Public Accountant (CA) in the required format. Transfers greater than $ 1 million per fiscal year require special authorization from the Reserve Bank of India. According to Indian tax law, the referrer is obliged to electronically provide the prescribed information in the form of 15CA (self-declaration) on the basis of a certificate from an auditor in the form of 15CB.
Because you are a UK citizen and qualify as a resident under UK domestic tax laws, LTCG may also be subject to UK tax on the sale of real estate in India under UK domestic tax laws. If so, you can claim a UK tax credit for taxes paid in India on double-taxed income under the applicable provisions of the India-UK Double Taxation Agreement (DTAA). You can consult a UK tax advisor for UK taxation.
Sonu Iyer is EY India’s National Head of Human Resources. Questions and views to [email protected]
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