Capital Gain on Sale/Transfer of Immovable Properties by Non-Resident Individual:

Immovable properties i.e., plot of land, residential flats or house, commercial properties etc. are treated as Capital Assets u/s 2(14) of the Income-tax Act, 1961 (‘the Act’) and accordingly gains arising from the Sale/transfer of immovable property is chargeable to income tax under the head Capital gains.

Further, it must be noted that immovable property which is classified as Rural Agricultural land as per the provisions of the Act, is not treated as Capital asset and accordingly gains arising from the transfer of same is not chargeable to tax. It may also be noted that a land has to qualify certain prescribed conditions mentioned under the Act to be defined as Rural agricultural land.

The Capital gains on sale of Immovable properties may be classified into Long Term or Short-Term Capital Asset based on the period of holding as follows:

*Plus applicable Surcharge, Health and Education Cess.

-      Updated 10/2024

Section 48 of the Income-tax Act, 1961 provides for mode of computation of capital gains. This is explained in the form of illustration as under:

Notes:

1.  Cost of Acquisition / Improvement:

Cost of acquisition generally refers to the consideration paid for purchase of property. Cost of improvement generally refers to any capital expenditure incurred in making any additions or alterations to the immovable property.

2.  Indexed Cost of Acquisition / Improvement:

In cases where the immovable property is held for more than 24 months (i.e. in case of Long Term Capital Asset), you shall get the benefit of indexation and such a cost is referred to as ‘Indexed cost of acquisition / Indexed cost of improvement’.

The Indexed Cost of Acquisition / Improvement is a concept which grants deduction of a larger amount than actual Cost of Acquisition / Improvement considering the prevalent inflation index for the prescribed year as issued by the Government of India.

Indexation: It is a process by which the cost of acquisition/ improvement of a capital asset is adjusted against inflationary rise in the value of asset.

However, as per recent amendment in law, benefit of Indexation on long term capital asset is removed for transfer/sale of immovable properties on or after July 23, 2024 by Non-resident Individual

3.  Inheritance / Gift:

In case of inheritance / gift, the aforesaid cost of acquisition / improvement shall be the actual cost of the acquisition / improvement of the person from whom the asset is received. The period of holding will be considered from the Date of Original Acquisition till the date of sale.

However, there is difference of opinion regarding whether the benefit of Indexation will be given from the date of Inheritance/ Gift or from the Date of Acquisition of the person from whom the asset is received. The said proposition is litigative in India and is pending before the Court of Law.

4.  Property held prior to 1.4.2001:

Where the property has been acquired by the person before 1.4.2001 or where the property was acquired through gift or inheritance from the person who acquired the property before 1.4.2001, then the cost of acquisition is the higher of:

a.    Actual cost of acquisition of the property or;

b.    Fair market value as on 1.4.2001.

However, as per recent amendment in law, the fair market value as on April 1, 2001, has been capped as not exceeding the “stamp duty value’’ of the property as on April 01, 2001. Further, the term “stamp duty value’’ has been defined to mean the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property.

5.  Stamp Duty valuation:

In case of transfer of an Immovable Property, the Act provides that the actual sale consideration should be compared with the stamp duty value. Stamp duty value is the value assessed at time of registration of the sale of the property with the Registration Authority of the State Government in India. Accordingly, while calculating capital gains, the actual sale consideration is compared with the stamp duty value and higher of the two values should be taken as sale consideration.

However, as per recent amendment in law, only if the Stamp Duty Value exceeds the actual sale consideration by more than 110% of the sale consideration, then in such case while calculating Capital Gains, Stamp Duty Value shall be considered as Full Value of consideration for the purpose of computing the Capital Gains.

Illustrative Computation of Full Value of Consideration for the purpose of calculating Capital Gains in case of Sale of Immovable Property is as follows:

Particulars	Amount (in Rs.)	Amount (in Rs.)
Sale consideration (A)	100
110% of A (B)	110
Stamp Duty Value as on date of Sale (C)	120
Full Value of Consideration		120
Less: Expenditure incurred wholly and exclusively in connection          with    such    transfer        (e.g. Transfer Fees, Brokerage, Commission, etc.)		(10)
Net Sale Consideration		110

 

 

 

 

 

 

 

 

In the above case, the sale consideration (A) is less than the stamp duty value (C). Further, the stamp duty value (C) also exceeds 110% of the sales consideration (A). Hence, for the purpose of  computing Capital Gains, Full Value of consideration shall be stamp duty value as on date of Sale (C).

Particulars	Amount (in Rs.)	Amount (in Rs.)
Sale consideration (A)	100
110% of A (B)	110
Stamp Duty Value as on date of Sale (C)	108
Full Value of Consideration		100
Less: Expenditure incurred wholly and exclusively in connection          with    such    transfer        (e.g. Transfer Fees, Brokerage, Commission, etc.)		(10)
Net Sale Consideration		90

 
 
 
 
 
 
 
 

In the above case, the sale consideration (A) is less than the stamp duty value (C). However, the stamp duty value (C) is not more than 110% of sale consideration i.e. (B). Accordingly, for the purpose of calculating Capital gains, full value of consideration shall be sale consideration (A) only.

Note: In the above mentioned note wherever the term Stamp Duty Value/SDV is mentioned, it may also be interchangeably referred to as circle rate/Jantri rate, District Level Committee (DLC) rate, etc. based on the location of property.

- Updated 10/2024

Capital Gains tax exemptions on reinvestment:

NRIs are entitled to claim exemption from the tax if they reinvest long term capital gains /net sale consideration into following assets.

Note: The above conditions have been provided briefly for your easy reference. There may be several additional conditions applicable which shall be provided separately on your request.

*  From FY 2020-21, the exemption can be claimed for the purchase or construction of 2 house properties if the amount of long-term capital gains does not exceed Rs. 2 crores. This option can be availed once in a lifetime, i.e. once this option is claimed, it cannot be further availed for the same or any succeeding financial years.

- Updated 10/2024

NOTE ON TAX EXEMPTION CERTIFICATE (TEC) ON SALE OF IMMOVABLE PROPERTY BY NON-RESIDENT INDIVIDUAL

1. What is a TEC?

TEC is a certificate issued by the Assessing Officer (“AO”) for the benefit of an Assessee, generally addressed to the payer of income. TEC authorizes the payer [who generally deducts tax at source at the highest prescribed rate in the Income-tax Act, 1961 (“Act”) i.e., 31.2% or 12.5%, as applicable, to deduct tax at a lower or nil rate as the case may be, from the NRI’s income.

The Act has provided procedure under section 197, whereby an Assessee can apply to  the  AO  (in  prescribed  form) requesting him/ her to issue a certificate authorizing payer of the income to deduct tax at a lower or nil rate as the case may be.

As per the Act, for making an application to the AO, the Assessee is required to estimate his/ her income in India, tax liability on the said income and likely TDS on the same. Basis the estimations of the said details, application for TEC can be made to the AO. In cases, where the AO has issued a TEC, the payer is obligated to deduct tax in accordance with such TEC unless it is cancelled by the AO. Such a certificate would be binding on the payer.
 

Validity of the TEC is mentioned in the certificate and AO generally issues TEC for one financial year (being April 1 to March 31) only.

2. Procedure for obtaining a TEC: 

Step 1: - PAN jurisdiction:

a) For obtaining TEC from the Income Tax Department (ITD), initially we need to check the Income Tax jurisdiction of NRI, basis the PAN allotted to him/her. In India, all the Assessee are given separate jurisdiction as per their surname, sources of income, residential address etc.

b) It shall be noted that all the NRIs should be assessed at the International Taxation (Int. tax) ward of ITD. Therefore, in your case, if the NRI’s jurisdiction is not in Int. tax ward then we will have to apply for migration of his/her PAN to the relevant Int. tax ward. Further note, the process of PAN migration takes about 15-20 working days after making the application to the AO.

c) Once his/her PAN gets migrated to Int. tax ward, the process of TEC application shall be initiated from our end.

Step 2: - Application for TEC:

1. Please note application for TEC is now required to be made online through TRACES portal.

2. Hence, to begin with the TEC process asseesee’s PAN is required to be registered on the TRACES portal.

3. Once the asseesee’s PAN is registered on the TRACES portal, we shall begin with the TEC process as under:

i.  The documents/information required to obtain TEC, shall be dependent upon the income for which a TEC needs to be obtained (eg: Rental income, sale of immovable property etc.) We shall be happy to share the list of documents required, upon complete understanding facts of your case.

Accordingly, based on the details and information received from the NRI, we will prepare the following documents: -

a.    Application letter for obtaining TEC.

b.    Application in Form No. 13.

c.    Letter of authority in favor of M/s G.P. Kapadia & Co., Chartered Accountants.

d.    Declaration-cum-Undertaking.

e.    Check list for documents and information for Section 195/197 of the Income-tax Act, 1961.

f.     Calculation of estimated tax liability on the income, for which TEC is required.

g.    If the NRI has not filed income tax returns for last 4 Assessment Years (AYs), he/she is required to submit estimated computation of income for last 4 AYs along with estimated computation of income for Current AY while making the TEC application.

ii. The above documents shall be emailed to the NRI for his/her review.

iii. After his/her confirmation, he/she shall print, sign and courier the documents as listed in point c, d, e and g above to us.

iv. On receipt of all the relevant documents, we shall make an online submission of Form-13 alongwith the supporting documents on TRACES website.

v. Once the TEC is uploaded, the tax jurisdiction will be allotted to by CPC where asseesee’s TEC application will be processed within 2-3 working days. Usually, it is the same as the asseesee’s actual Income-tax Jurisdiction. However, in case the jurisdiction allotted by CPC is not the same as the asseesee’s actual tax jurisdiction we will have to migrate the asseesee’s PAN. This process can take upto working 4-5 days.

vi. The AO shall review our application of TEC and may raise requirement of few additional details and/or documents.

vii. In case of additional requirements by AO, we shall have to make the necessary submission along with the additional details online.

viii. Once the AO is satisfied with our submission and has all the details required, he will issue the TEC order by uploading on TRACES portal.

ix. Once TEC order is uploaded, we shall download the same and share it with you via email so that you can forward it to your payer.

3. Time frame within which TEC can be obtained:

Once all the relevant details and documents are received from client’s end, normally it takes around 45 to 60 working days to obtain the TEC from ITD.

In case, PAN migration is also involved, we can start the TEC process and PAN migration process simultaneously. However, additional time of about 15-20 working days will be required.

The timelines mentioned above are conservative. We can try and expedite obtaining TEC if all the documents are in order subject to satisfaction of the Assessing Officer. However, we cannot give any assurance that the certificate shall be issued within the stipulated time, as it solely depends on the AO’s discretion.

-  Updated: 10/2024

Set-off and Carry forward of Losses:

As per the provisions of the Income-tax Act, 1961 the Loss incurred on sale/transfer of Immovable property (and other capital assets) can be set-off as follows:

Further, if, in a particular Financial Year (FY), amount of Short/Long Term Capital loss is not fully set-off against income/ gain due to inadequacy of income/ gain, such loss may be carried forward to subsequent 8 FYs provided Return of Income (ROI) is filed within prescribed time limit.

- Updated 10/2024