Tips NRIs Must follow to Reduce Tax Liability

NRIs (non-resident Indians) play a vital role in the development of real estate in India. However they face problems in selling their properties in India. Some useful tips are provided to reduce sale tax liability.

NRI faces Sales Tax Liability

NRI faces Sales Tax Liability in Selling of their Real Estate Property.

Before selling the property an NRI must be aware of some basic rules and regulations which govern the sale of any property in India.

As real estate investment is considered as the most suitable  option for investment, NRIs are tempted to invest more on properties especially in hotter areas like Mumbai or Bangalore.

But when it comes to the matter of reselling of the property they find it difficult and troubled by the existing sale tax rules in India. However an NRI can reduce Sale Tax if he follows certain methods.

Income-Tax on Sale

As per Income-Tax Act, 1961 all the profits earned from the sale of property should be liable to capital gains tax. Capital gains can be calculated by reducing the cost of purchase from the sale value of the property. It is the difference between the two.

Depending on the period for which the property is held, Capital gains are classified in to two types – short term and long term. Short term capital gains extend up to 36 months whereas long term capital gains stands for those properties which we hold for more than 36 months.

The short-term capital gain will be taxed at normal slab rates. Long-term capital gain is taxed at 20%, subject to certain conditions.

How to Reduce Tax Liability

The sold residential property which an NRI held for more than three years, will normally invite 20% of sale tax. However one can reduce the sale tax liability in many ways.

a.     Reinvestment

Reinvestment of the sale amount is the best way. One has to produce the reinvestment documents to the sale tax department. Always the capital gain will be exempted in case of reinvestment on the purchase of a new home or residential property.

The exemption will be applied to the property which was purchased within one year of sale as well as a property purchased within two years from the date of purchase. In the case of a new home construction this is 3 years.

b.     Capital Gain Account Scheme

In case of failing in proper reinvestment within the definite period of time, the remaining option is Capital Gain Account Scheme. Under this scheme the NRIs who fail to invest in time, can deposit the amount of sale in a nationalized bank. This amount however required to be used for the purchase of another residential property within a specific period. In such instances tax exemption will be considered.

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