How can NRIs scale back the tax burden whereas promoting a property?

My son is a US citizen and owns a residential property in India, which he acquired earlier than transferring to the US. He now needs to dispose it. We will not be certain of the taxes and the general influence as a result of sale of this property. Let us know how one can go about with the tax planning and scale back the general tax burden. Also, what are the implications of gifting of property to his sibling in India.

—Name withheld on request

If the property that has been offered was held for greater than 2 years, positive aspects from its sale shall be handled as long run capital positive aspects. However, the place the property was held for lower than 2 years, the positive aspects shall be handled as quick time period capital positive aspects. For the aim of calculating long run capital positive aspects, value is allowed to be listed. Any enhancements made to the property will also be listed. This listed value may be subtracted from the sale value to reach at capital positive aspects. Long time period positive aspects are taxed at 20% (together with further cess and surcharge as relevant). Short time period positive aspects may be arrived at after lowering the fee from the sale value. Short time period positive aspects shall be taxed in keeping with the slab price relevant to the taxpayer.

You are allowed to assert exemption from capital positive aspects by investing your capital positive aspects in buying a brand new residential home as per circumstances laid down underneath part 54 of the Income Tax Act. Under this part, a brand new residential property have to be bought both one 12 months earlier than or two years after or a brand new property have to be constructed inside three years from the date of switch of the property being offered. You should not promote this newly acquired property inside three years of buying it.

You may declare exemption from capital positive aspects by investing your capital positive aspects in specified bonds inside six months from the date of switch of the property being offered as per Section 54EC of the earnings tax act. However, a most of ₹50lakh may be invested in these bonds in a single monetary 12 months. Additionally, its necessary to establish in case your son is a resident or NRI in India for tax functions. Reference should be made to the DTAA between the 2 international locations to verify the advantages underneath the treaty can be found to him in order that he doesn’t must pay tax on the identical earnings twice.

In case he decides to reward the property to his siblings, there isn’t a tax implication in your son or his siblings since siblings are thought of as specified relations for the aim of the Income Tax Act of India. Therefore, presents made to siblings will not be topic to tax in India.

Archit Gupta is founder and chief government officer, Clear.in.

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