Does a non-resident have to pay tax on sale of property in India?

I am a Canadian citizen. My parents bought a property in Mumbai in 2000, and after their demise, the property is now jointly owned by my brother, who lives in Mumbai, and me. We now plan to sell the property. Do I have to pay tax on the sale, and if so, how much will the tax be?

— Name withheld on request

As a non-resident, you are required to pay tax on the sale of the ancestral property in Mumbai, just like a resident. Since the property has been held for more than 24 months, any profits from the sale will be considered long-term capital gains.

For calculating capital gains, the cost of acquisition is crucial. In the case of inherited property, the cost is considered to be the price paid by the previous owner. Since the property was acquired before 1 April 2001, the acquisition cost for capital gains purposes is the fair market value of the property as at 1 April 2001.

To determine the fair market value, you can use the applicable rates or values ​​such as circle rate or stamp duty rate of the property on that date. If these values ​​are not available, a valuation report must be obtained from a registered valuer. It is important to note that the value of the valuation report should not exceed the prescribed rates or values.

The cost is then increased by applying the cost inflation index of the year of sale. The difference between the sale price and the indexed cost is the long-term capital gains, which are taxed at a flat rate of 20%. To mitigate this tax, you have the option of investing the long-term indexed capital gains in residential property or specified capital gain bonds within the specified period. As a non-resident, the buyer is obliged to deduct tax at 20% on the calculated long-term capital gains if you provide documentary evidence of the cost. If proof is not provided, the buyer will deduct a tax of 20% on the total sales consideration.

If you have no other taxable income in India, you will have to pay tax at 20% on the capital gains, as non-residents cannot offset the shortfall in the basic exemption limit against long-term capital gains.

Aditya Chopra is the managing partner and Amay Jain is the Senior partner at Victoriam Legalis – Advocates & Solicitors.

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Updated: 22 November 2023, 12:12 AM IST

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