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Tax on capital gain depends on period of holding the asset
October, 09th 2015

I am a citizen of New Zealand, but own a piece of land in Gujarat in India, which was purchased when I was a citizen of India, in 1985. But I now want to sell it. Will there be any capital gains tax, and who will bear the tax burden?

As per the Indian tax law, income earned from sale of property situated in India attracts capital gain tax irrespective of nationality and residential status of an individual.

Tax on capital gain varies basis its period of holding. If the capital asset is held for 36 months or less, the same will be considered as a short-term capital asset and hence, taxable on normal tax rates. If the capital asset is held for more than 36 months, the same will be considered as a long term capital asset and incur long term capital gain (LTCG).

In your case, as the land (considering it is non-agricultural) is held for more than 36 months, the same will attract LTCG. The difference between the sale consideration and indexed cost of acquisition will be taxed in the hands of seller as LTCG at a 20% tax rate (plus surcharge and education cess) after indexation of cost to inflation. There are certain benefits available under the Indian tax law to reduce the burden of capital gain tax. The said benefits are available on making the following investments:

1) By investing the amount of capital gain in the bonds issued by Rural Electrification Corp. Limited or National Highway Authorities India within a period of 6 months after date of sale (maximum amount that can be invested is Rs.50 lakh in the year of sale and its succeeding year cumulatively)

b. By investing the sale proceeds in purchase of a residential house within one year prior to the sale or two years after the sale, or in construction of residential house within 3 years of sale. Further, in case the amount remain un-invested until the due date of filing of India tax return (i.e. 31 July), then there is an option to put the unutilised amount in a Capital Gains Account Scheme with a bank (not later than the filing India Income-tax Return) and subsequently withdraw this amount for re-investment.

However, with each of the above stated benefits, there are certain conditions attached such as lock in period, restrictions on sale of newly acquired asset, among other things. The above benefits can be availed only upon fulfilment of such conditions and provisions. As the capital gain would arise to the seller of property, the taxes on the same would need to be discharged by the seller herself. The tax on capital gains is required to be discharged by way of advance tax (if the total tax liability net –off tax deducted at source exceeds Rs.10,000) in three prescribed instalments (30% by 15 September, 60% by 15 December and 100% by 15 March).

In case the tax is not deposited as per the prescribed instalments, the same will need to be discharged by way of self-assessment tax along with applicable interest at the time of filing of India Income-tax Return.

 
 
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