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I am an NRI, want to sell ancestral property in India. Income tax rule explained

I am an NRI having Indian passport. I want to sell my ancestors property in India. The property was purchased in 1961. Now it is owned by me via legal heirship. I want to sell the property now. Will there be any liability? Can I claim indexation? Is TDS applicable in such case? If yes, what percentage?

Whether you are an NRI or an Indian resident, the tax provisions for sale of inherited property are the same. Since the property was acquired in 1961, any profit made on sale of it will be taxed as long term capital gains. For the purpose of computing capital gains, you will have to take the fair market value of the property as on 1st April 2001 as your cost. You need to obtain a valuation report for fair market value of the property as on 1st April 2001 from a registered valuer.

The fair market value cannot be higher than the stamp duty valuation of the property at that date. Such fair market value of the property is to be indexed with Cost inflation index of the year of sale. The net sale price after deducting expenses incidental to the sale and as reduced by indexed cost is your taxable long term capital gains on which tax @ 20% (plus surcharge and cess) is payable. 

Yes, tax deduction will apply on this transaction. Since you are a non-resident for tax purposes, the buyer is required to deduct tax at source as per Section 195 @ 20% on taxable capital gains irrespective of the sale value of the property. For the buyer to correctly compute the taxable amount of long term capital gains, you will have to share the relevant documents like valuation certificate and expenses incurred for the sale transaction. In case you wish the buyer not to deduct tax at source, you can approach the jurisdictional income tax officer to issue you a certificate for non-deduction of tax at source. 

You can save long term capital gains if your buy a residential property within specified period and/or invest the indexed long term capital gains in capital gains bonds within six months from sale of the property.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter

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