Gain on property sale taxed based on period of holding

Any gain arising from a sale of property located in India is taxable in the year of transfer and is subject to capital gains tax

I am a non-resident Indian (NRI) and a resident of the US. I want to buy a property in India and I want to know what will be the tax liability when I sell the property.

—Ramesh Gupta

Any gain arising from a sale of property located in India is taxable in the year of transfer and is subject to capital gains tax. Depending on the period of holding the property, capital gain will be considered as either long-term capital gain (LTCG—if holding period is over 36 months); or short-term capital gain (STCG—if holding period is 36 months or less).

LTCG is subject to a tax rate of 20% (excluding surcharge and education cess) after indexation of cost. It can be claimed as exempt to the extent it is re-invested in India (before filing of India tax return) in specified bonds or a residential house (to be either purchased within 2 years or constructed within 3 years of transfer of the land). There are certain restrictions, however, on the sale of the new asset bought and the quantum of investment made in bonds. If due to some reason, the capital gains remain un-invested until the due date of filing of India tax return (i.e., 31 July), the money could be deposited in a capital gains account scheme with a bank and subsequently withdrawn for re-investment. STCG is taxable at progressive rates of 10-30% (excluding surcharge and education cess).

Method of calculation of capital gains: Tax is payable on net consideration, which is full value of consideration that would be received on transfer minus cost of acquisition (indexed cost in case of LTCG), cost of improvement (indexed cost in case of LTCG), and cost incurred to execute the transfer. Any loss on sale of property can be carried forward up to eight years from the year of sale by filing a tax return. The loss can be offset against LTCG or STCG. Therefore, any gain on sale of house property would be subject to tax depending on the period you hold the property for.

I live in New York and hold a non-resident rupee account. I want to gift a house to my sister who lives in India. I wanted to know what will be the tax implications for both of us?

—Karunya Talwar

There is no gift tax in India. However, income tax is payable on any sum of money, movable property or immovable property received by an individual without consideration (i.e., without a quid pro quo), except gifts received from a relative. Any income from such property or any gains on the sale of such property in India will be taxable on its receipt in the hands of the legal owner.

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