Tax guidelines for NRIs on sale of belongings situated in India

Do non-resident Indians (NRIs) must pay revenue tax in India? Yes, non-residents (each Indians and foreigners) must pay tax in India in the event that they earn an revenue by means of a supply situated within the nation or if the primary place of receipt of revenue is in India. The taxation of revenue from sale of belongings in India will rely upon the character of the asset.

The Income-tax (I-T) Act, 1961 supplies for taxation of revenue generated from the sale/ switch of capital belongings (i.e., capital beneficial properties), which embrace shares, securities, immovable property, jewelry, and so forth., whereas sure classes comparable to stock-in-trade, movable property, specified bonds, and so forth., don’t qualify as capital belongings.

Tax on capital beneficial properties is set on the idea of the period for which the belongings are held. As a thumb rule, belongings held for no more than 36 months are short-term belongings. However, there are specific exceptions (see desk above). Capital achieve is calculated by deducting the price of acquisition (COA) of the asset and the bills incurred in its switch from the sale consideration of the asset. In sure instances, the I-T Act additionally permits changes to the COA in step with the inflation/ change fluctuation.

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The capital beneficial properties computed for non-residents are taxed at specified charges relying on the character of asset (see the desk above). In addition to the above, surcharge and well being and schooling cess will likely be levied at relevant charges and the efficient tax price may very well be as much as 42.74%. However, within the case of capital beneficial properties on the sale of listed shares, the surcharge is capped at 15%. In the Union funds 2022, it’s proposed that the 15% surcharge cap will likely be prolonged to all long-term capital beneficial properties (LTCGs) from the monetary yr 2022-23 onwards.

The I-T Act additionally has particular provisions on taxation of funding revenue and LTCGs earned by NRIs from funding in specified belongings (shares, debentures, deposits in an Indian firm, and so forth.) acquired in convertible international change. Further, people are required to pay advance tax on the capital beneficial properties earned by them solely from the respective quarter wherein the capital beneficial properties come up.

Non-residents also needs to take a look at taxation of capital beneficial properties beneath the double taxation avoidance agreements or tax treaties that India has entered with varied international locations. India’s tax treaty with the US and the UK requires capital beneficial properties to be taxed as per the home tax legal guidelines of respective international locations, whereas treaties with Singapore and Mauritius have particular provisions relating to the suitable of taxation relying on the character of the capital asset. In case of immovable property, the suitable of taxation is given to the nation the place the asset is located.

Take word that treaty advantages can be found solely to people who’re resident of a minimum of one of many international locations which might be events to the tax treaty. Also, a few of these treaties have a provision that the person is not going to be eligible to avail advantages if the person has organized his/her affairs with the primary intent to avail treaty advantages. Considering the above, NRIs ought to fastidiously consider every sale transaction of their belongings situated in India to find out the taxability and keep correct documentation to make sure applicable tax compliance.

Amarpal S Chadha is accomplice and India Mobility Leader, People Advisory Services, EY.

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