Under the provisions of the Income-tax Act, 1961, the gains, if any, resulting from sale of any property (whether in or outside India) shall be taxable as capital gains under section 48. Further, the tax implications on sale of property (assuming residential property) in the assessee’s hand would depend upon the tax residential status in India in the financial year (FY) of the sale of property.
Residential status in turn would be determined by his physical presence in India during the FY and the immediate preceding seven FYs.
Recommended Read: Decide your Residential Status for Tax Liability
Depending upon the stay in India, in case assessee qualify as either non-resident (NR) or not-ordinarily resident (NOR) in the FY of sale of property, he shall be taxable only on India sourced income. Accordingly, the gains, if any, arising from sale of the property located in abroad shall not be taxable in India provided the sale proceeds are directly credited to the overseas bank account. If the sale proceeds are directly credited to assessee’s Indian bank account, then the gains shall be taxable in the first instance in India on receipt basis.
Please note that the mere remittance of funds from overseas bank account to the Indian bank account shall not attract any tax implications in India.
However, if assessee qualify as ordinarily resident (OR) of India (likely if he has spent more than 729 days in India in seven FYs preceding the FY of sale of property), his global income shall be taxable in India irrespective of source or place. Accordingly, the gains arising from sale of foreign property shall be taxable in India subject to the benefits available under the double tax avoidance agreement between India and Foreign Country.
Now the rate of tax leviable on the assessee shall be decided by the holding period. In case his holding period is more than 36 months then Long Term Capital Gain will be leviable else Short Term Capital Gain.
While computing the LTCG, the purchase cost and the cost of improvement, if any, made subsequent to purchase shall be increased based on the cost inflation index published by the Income tax department. He could avail an exemption from capital gains tax by re-investing the LTCG in a residential apartment or specified bonds under section 54 or 54EC.
The quantum of LTCG re-invested can be claimed as exempt from tax.
The balance LTCG shall be taxable at a flat rate of 20.60% (including education cess) assuming that his income exceeds the basic tax exemption threshold.
In case assessee’s holding period lies within 36 months then Capital Gains shall be short term capital gain.
Short Term capital gain is calculated simply by deducting the cost of purchase and any transfer expenses from Sale Price. The gain shall not be available for any exemption as available in long term capital gain.
Tax shall not be levied at a flat rate rather than the gain shall be added in the income of the assessee and taxed at the normal applicable tax slab.
Further, if assessee has paid any taxes in the foreign country on the said income, he may also be eligible to claim a credit of taxes in India subject to examination of the provisions of the treaty.
As per the provision of the Act, effective from the FY12 onwards, an individual who qualifies as OR of India and who has assets located outside India is required to furnish details of assets located outside India such as foreign bank accounts, immovable property in the income-tax return.
Accordingly, depending upon assessee’s residential status if he qualify as either NR or NOR of India for the relevant FY, he would not be required to comply with the aforesaid disclosure requirements. However, if he qualifies as OR of India, he shall be required to disclose the details of the immovable property, such as cost of investment, address where the property is located in his income-tax return. Any failure to comply with the above disclosure requirement may attract penal consequences.
Under the wealth tax provisions, wealth tax is payable at the rate of 1% on net wealth exceeding Rs.30 lakh on specified assets (for foreign citizens, only assets situated in India). Any residential property (other than one self-occupied residential property) that has not been let out for a minimum period of 300 days is considered as one of the specified asset and hence, attracts wealth tax. Accordingly, considering assessee’s citizenship and other assets, he may examine the applicability of wealth tax provisions.