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How to plan Taxability on Property sale by NRI

If you are NRI planning to sell your property in India and not sure how to deal with it, this blog Guides you in details covering the main points of selling Property in INDIA

”Headache due to unawareness”:-Taxation sometimes becomes a headache for NRI’s while selling property in India due to confusion and lack of knowledge. But in real, taxability on property is not that much complicated, you just have to be more aware of the procedures. Tax for NRI and residents are compulsory.

Now we will see all the main points for selling property

(1) Taxation rules in India from 2017

(2) Keeping in mind IT department

(3) Don’t avoid important points while selling property

(4) Plan taxability while selling property to retain capital gain as much as possible.

(5) DTAA act.

1.) Change in Taxation Rules in financial year 2017 budget

For NRI who is selling his/her property in India pay tax on capital gains, now here tax depends on whether it is short or long term capital gain. As we know in 2017 budget property policy was reduced to two years from three. So when a property is sold from the date it was owned- then it will be considered as long term capital gain and if it is less than two years it will considered as short term capital gain.

2.) Keeping in mind IT department

Procedures and protocols of the IT department is very much clear from past few years in India. Files are checked of buyers and sellers, they will figure out on areasaboutwho has not paid tax on capital gain from property, after that they will collect information of such cases and start sending notices instantly to buyers and sellers. There many cases where NRI’ssink deep in these kinds of problems.NRI generally face problems because of real estate agents who do not possess thorough knowledge of rules and regulations,ultimately leading them to non-handling of such cases.

Prompt checking of the documents, else person liable for this will be NRI himself/herself, as laws in India are becoming stringent day by day because of which the NRI’s are facing more problems.

3.) Points to look out while selling property

a) Hire Professional

First and most important point is to “Hire a professional by your side for property aspects at the time of selling”, not everyone knows tip to toe aspects of selling property by an NRI in India to avoid unwanted problems.

b) Power of attorney with limited powers

After hiring professional second point, NRI can give power of attorney to their close ones in India, if NRI don’t want to travel for property selling, but NRI should always take care and keep clear and specific power of attorney so that he/she cannot misuse it. Registered sale deal should be taken from power of attorney person for safety. Because problemsmay occur in power of attorney for example: he/she pays you 1lac for your property and not registering deal , in future if he/she sells this property and registered for 1.50 lac than NRI can face a problem. So to avoid this kind of things better is to get registered deal and documents are necessary, else NRI will face problems like received amount will not be counted as valid at all and taxes will be charged on deal done afterwards with interest.

c) Capital gains cannot be re invested into multiple properties NRI should only purchase ready property/ building.

d) Pay capital gain tax if he/she is not investing again in Indiafor their safety as penalties are severe. So it is better to pay taxes on sold property as slabs of taxes are their pay according to property period.

e) Capital criteria are of two types: short term and long term capital asset gain. Long-term are 24 months, from 2017-18 budgets there is indexed benefit for long term than in short term less than 24 months.

4.) How to plan on taxability

The only aspect comes into mind while selling property is taxation, There are few ways to save capital gains let’s see some possibilities how to plan on sold property capital gain to avoid taxes.

1. Buy a resident house in 2 years time,by doing this you get exemption, just to keep in mind new house cannot be sold for next 3years else capital gain benefit will be withdrawn.

2. Buy capital gain Bonds, purchase bonds of capital gain of NHAI and REC, by purchasing get benefit of current interest rates on bonds, bonds should be purchased within 6months time, bonds are not transferable, bonds cannot be sold, these are secure and rated very high for investments. Bonds will only be available for sold property from 2018-19 onwards financial year, time period of bonds is 3 years, from 2018-19 onwards bonds will be kept for 5 years.

3. Invest in temporary capital account schemes.

4. Last point is debatable but if you harvest your tax by investing in share market, generally this practice is done for saving capital gain and avoid taxes. Invest in mutual funds and shares.

5.) DTAA: – India also have double taxation avoidance agreement (DTAA) with many countries to benefit NRI’s who are paying tax in both the countries, so NRI’S who belong to DTAA country then tax will depend on lower of tax rates- out of DTAA specified rate and tax rate in India another way of saving tax is to invest in tax. Saving bonds like REC & NHAI bonds or deposit specified amount in a public sector bank can help to regain capital gain. (According 1988 act).