As an NRI (Non-Resident Indian), selling a property in India comes with certain tax implications, one of which is determining the residency status of the seller. It’s crucial to ascertain whether the seller is a resident or non-resident in India, as it impacts the tax treatment of the property sale. Let’s delve into this topic in detail.
Hate reading, Watch the video
Resident Seller:
A resident seller in India refers to an individual who meets the residency criteria as per the Income Tax Act, of 1961. According to the Act, an individual is considered a resident in India if they satisfy any of the following conditions:
- Stay in India during the financial year (April to March) is 182 days or more, OR
- Stay in India during the financial year is 60 days or more and in total, 365 days or more in the preceding four financial years.
If the seller meets either of these criteria, The authorities consider them a resident seller for tax purposes in India.
Consult CA Arun Tiwari for more info at 📞 8080088288 or cs@aktassociates.com
Non-Resident Seller:
On the other hand, a non-resident seller in India refers to an individual who does not meet the above-mentioned residency criteria and, therefore, does not qualify as a resident seller. A person is classified as a non-resident seller if they spend less than 365 days overall during the past four financial years—that is, less than 365 days in India—in addition to less than 182 days during the current fiscal year and less than 60 days during the previous fiscal year.
The correct determination of the residency status of the seller is crucial, as it has significant implications for the tax treatment of the property sale by an NRI in India.
Tax Implications for Sale of Property by Resident Seller:
If the seller is a resident of India, the following tax implications apply:
1. Capital Gains Tax:
The profit from the sale of the property is subject to capital gains tax. If someone keeps a piece of property for longer than two years, They regard it as a long-term capital asset, and the profits are subject to indexation and a 20% tax rate. If someone keeps a piece of property for two years or less, They regard it as a short-term capital asset, and any gains are subject to the corresponding slab rates of taxation.
2. TDS (Tax Deducted at Source):
If the sale consideration exceeds Rs. 50 lakhs, Before making the payment to the seller, the buyer must deduct TDS at the rate of 1% of the sale consideration.
Tax Implications for Sale of Property by Non-Resident Seller:
If the seller is a non-resident in India, the following tax implications apply:
1. Capital Gains Tax:
Similar to resident sellers, capital gains tax is applicable on the profit made from the sale of the property. If you hold the property for more than 2 years, they consider it a long-term capital asset, and the gains are taxed at 20% with the benefit of indexation. If you hold the property for 2 years or less, the authorities consider it a short-term capital asset, and they will tax the gains according to the applicable slab rates.
2. TDS (Tax Deducted at Source):
If someone purchases the property from a non-resident, Before making the payment to the seller, the buyer must deduct TDS at the rate of 20% of the sale consideration.
It’s important to note that in the case of the sale of agricultural land, certain exemptions may apply for both resident and non-resident sellers. It’s advisable to consult a tax professional or a chartered accountant
Conclusion
Determining the residency status of the seller is crucial when selling a property in India as an NRI. The residency status of the seller impacts the tax treatment of the property sale, including capital gains tax and TDS. Resident sellers and non-resident sellers have different tax implications and TDS rates. It’s essential to consult a tax professional or a chartered accountant for proper guidance on the tax implications of property sales in India based on the residency status of the seller. Understanding the residency status and associated tax implications will ensure compliance with Indian tax laws and avoid any potential legal or financial issues in the property sale process.