Tax details for NRI property sale and purchase
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Non-resident Indians (NRIs) and their implications on taxation for sale and purchase of properties has been a problem of ambiguity. India's top legal firms AZB explains on the taxes that will be involved for sale and purchase of property by NRIs. Sunil Agarwal, its tax partner tells CNBC-TV18 regarding the process involved in such transactions. Agarwal himself retired as the income tax commissioner in Delhi.
Q: You have been an income tax officer; you have an insight into what the taxman looks at before issuing notices. What should the NRI seller and the Indian buyer keep in mind to avoid it?
A: There are two methods. We have issued so many orders which are called withholding orders, a non-resident intending to sell property in India have to make an application to the assessing officer in which he has to give the details. What was the acquisition price, what is the sale price now and if he has done some improvement in that property the calculation is done like this.
Sale price minus the cost of acquisition, minus the improvements, minus brokerage, minus maybe travelling expenditure of the NRI for the purpose of finding out a buyer all these expenses are deducted that is the amount of net long-term capital gain on which the tax has to be paid upfront, the rate is at the moment 20 percent including surcharge it may turnaround 22 percent.
So that amount has to be paid upfront to be deposited with the government and balance amount can be in the possession of the NRI depending upon his position it can be credited to his Non Resident Ordinary Account (NRO) account or part of it maybe repatriated. We were not taking more than a day for issuing this kind of certificate provided the basic information.
Q: In this years Budget the Finance Minister introduced a new provision of a 1 percent withholding tax on properties above Rs 50 lakh. How does this provision work if one is doing a transaction with an NRI?
A: The Finance Minister has been rather reasonable that he has imposed this levy only on those properties whose sale value is more than Rs 50 lakh. The TDS rate is 1 percent only and there is a relaxation that such an NRI would not be required to have a Tax Deduction Account Number (TAN) number.
I believe that Permanent Account Number (PAN) number is still required but TAN number is not required that is the only relaxation.
Q: All NRIs don’t necessarily have a PAN number, some people claim it is not even necessary for the NRI to get a PAN number to sell properties back home. Is that advisable?
A: Now-a-days you might be aware that if a non resident does not have a PAN number then the rate of withholding is higher. There is a section called 206AA in Income Tax Act which is there for couple of years now. I don’t see any reason for not obtaining PAN. It does not harm the NRI in any way to have a PAN number.
Q: Besides PAN any other requirement the Indian buyer should insist upon?
A: Other than that I don’t think there is any tedious requirement. Other than that the process is a bit simple I would add one more thing that this tax rate which is to be tax which is to be withheld can be obtained from the assessing officer.
There is another mechanism which the Central Board of Direct Taxes (CBDT) has issued for mow more than 15 years that is on the basis of a chartered accountant (CA) certificate the amount of tax can also be calculated and can be paid upfront before remitting the proceeds to the non-resident seller.
Q: Going to a CA would obviously be quicker but as a former tax man would you still say that is a better option, income tax officers after all have no time barred to give their views?
A: There are certain delays possible when the assessing officer issues the withholding order. Precisely to address that problem of delay the CBDT about 15 years back started the process of allowing the remittances on the basis of a CA certificate as an alternate to the assessing officer certificate and that process has been fine tuned over the years.
In fact about a week back or so the CBDT has modified those forms, they are technically called Form 15CA and Form 15CB which can be issued by CA. So, to my mind it is not necessary to go before the assessing officer. Two, the capital gains computation in the case of immovable property is relatively a straight forward process.
There are not many grey areas therefore I don’t believe that the computation by a CA would be significantly different than the computation done by the assessing officer. Therefore, to my mind in the interest of quickness perhaps CA certificate would be as efficient a mechanism.
Q: Tax experts say there is nothing difficult in figuring out a calculator for the indexed cost of purchase but can you take us through the right procedure for that calculation?
A: The seller in such properties he will have the benefit of something called cost inflation index. Means the property has been held by the holder for say five years. So, the government allows some kind of a artificial inflation of the cost on the basis of inflation which is happening everyday.
For that there is a cost inflation index which is notified every year by the government and so effectively it happens that if the property was purchased originally say for Rs 1 crore maybe after five years the cost would be determined at Rs 1.30 lakhs.
So, that would be the amount which will be deducted from the sale proceeds and not Rs 1 crore alone. So, this is just to compensate for the inflation and loss of money value because of inflation.
Q: Any special tax implications that a buyer of a property from an NRI should keep in mind?
A: The tax which is to be paid has to be remitted to the non resident and therefore any amount which goes out of India to a non resident has to be net of income taxes. So, the tax calculation would again be the same which I explained earlier.
The net of taxes the amount can be remitted by the Indian buyer to the non resident seller.
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♥ Pulla Harsha Vardhan ♥
© pullaharshavardhan.blogspot.in ©
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------------------------------
Non-resident Indians (NRIs) and their implications on taxation for sale and purchase of properties has been a problem of ambiguity. India's top legal firms AZB explains on the taxes that will be involved for sale and purchase of property by NRIs. Sunil Agarwal, its tax partner tells CNBC-TV18 regarding the process involved in such transactions. Agarwal himself retired as the income tax commissioner in Delhi.
Q: You have been an income tax officer; you have an insight into what the taxman looks at before issuing notices. What should the NRI seller and the Indian buyer keep in mind to avoid it?
A: There are two methods. We have issued so many orders which are called withholding orders, a non-resident intending to sell property in India have to make an application to the assessing officer in which he has to give the details. What was the acquisition price, what is the sale price now and if he has done some improvement in that property the calculation is done like this.
Sale price minus the cost of acquisition, minus the improvements, minus brokerage, minus maybe travelling expenditure of the NRI for the purpose of finding out a buyer all these expenses are deducted that is the amount of net long-term capital gain on which the tax has to be paid upfront, the rate is at the moment 20 percent including surcharge it may turnaround 22 percent.
So that amount has to be paid upfront to be deposited with the government and balance amount can be in the possession of the NRI depending upon his position it can be credited to his Non Resident Ordinary Account (NRO) account or part of it maybe repatriated. We were not taking more than a day for issuing this kind of certificate provided the basic information.
Q: In this years Budget the Finance Minister introduced a new provision of a 1 percent withholding tax on properties above Rs 50 lakh. How does this provision work if one is doing a transaction with an NRI?
A: The Finance Minister has been rather reasonable that he has imposed this levy only on those properties whose sale value is more than Rs 50 lakh. The TDS rate is 1 percent only and there is a relaxation that such an NRI would not be required to have a Tax Deduction Account Number (TAN) number.
I believe that Permanent Account Number (PAN) number is still required but TAN number is not required that is the only relaxation.
Q: All NRIs don’t necessarily have a PAN number, some people claim it is not even necessary for the NRI to get a PAN number to sell properties back home. Is that advisable?
A: Now-a-days you might be aware that if a non resident does not have a PAN number then the rate of withholding is higher. There is a section called 206AA in Income Tax Act which is there for couple of years now. I don’t see any reason for not obtaining PAN. It does not harm the NRI in any way to have a PAN number.
Q: Besides PAN any other requirement the Indian buyer should insist upon?
A: Other than that I don’t think there is any tedious requirement. Other than that the process is a bit simple I would add one more thing that this tax rate which is to be tax which is to be withheld can be obtained from the assessing officer.
There is another mechanism which the Central Board of Direct Taxes (CBDT) has issued for mow more than 15 years that is on the basis of a chartered accountant (CA) certificate the amount of tax can also be calculated and can be paid upfront before remitting the proceeds to the non-resident seller.
Q: Going to a CA would obviously be quicker but as a former tax man would you still say that is a better option, income tax officers after all have no time barred to give their views?
A: There are certain delays possible when the assessing officer issues the withholding order. Precisely to address that problem of delay the CBDT about 15 years back started the process of allowing the remittances on the basis of a CA certificate as an alternate to the assessing officer certificate and that process has been fine tuned over the years.
In fact about a week back or so the CBDT has modified those forms, they are technically called Form 15CA and Form 15CB which can be issued by CA. So, to my mind it is not necessary to go before the assessing officer. Two, the capital gains computation in the case of immovable property is relatively a straight forward process.
There are not many grey areas therefore I don’t believe that the computation by a CA would be significantly different than the computation done by the assessing officer. Therefore, to my mind in the interest of quickness perhaps CA certificate would be as efficient a mechanism.
Q: Tax experts say there is nothing difficult in figuring out a calculator for the indexed cost of purchase but can you take us through the right procedure for that calculation?
A: The seller in such properties he will have the benefit of something called cost inflation index. Means the property has been held by the holder for say five years. So, the government allows some kind of a artificial inflation of the cost on the basis of inflation which is happening everyday.
For that there is a cost inflation index which is notified every year by the government and so effectively it happens that if the property was purchased originally say for Rs 1 crore maybe after five years the cost would be determined at Rs 1.30 lakhs.
So, that would be the amount which will be deducted from the sale proceeds and not Rs 1 crore alone. So, this is just to compensate for the inflation and loss of money value because of inflation.
Q: Any special tax implications that a buyer of a property from an NRI should keep in mind?
A: The tax which is to be paid has to be remitted to the non resident and therefore any amount which goes out of India to a non resident has to be net of income taxes. So, the tax calculation would again be the same which I explained earlier.
The net of taxes the amount can be remitted by the Indian buyer to the non resident seller.
---------------------------------------------------------------------------------------
Subscribe And Be Updated Yourself
♥ Pulla Harsha Vardhan ♥
© pullaharshavardhan.blogspot.in ©
----------------------------------------------------------------------------------------
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