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Give proof for tax benefit on long-term gains on house saleaq
May, 16th 2014

I am an American citizen. I plan to sell my house in India and then buy another one using that money. What documents are required to compute long-term capital gains on this transaction? Also, will I be required to pay tax in India or in the US?
—G. Chhadha

Gains from transfer of a capital asset being a house is computed by deducting the cost of acquisition of the asset, cost of improvement and any expenditure incurred wholly and exclusively in connection with the transfer from the sale consideration.

In this regard, you will need the following documents to substantiate the gains arising from the transfer of the house:
a) Sale deed

b) Deed of purchase providing details of the cost of acquisition. In case of construction, you should have supporting documents to substantiate the cost incurred
c) If you have incurred any cost towards improvement (renovation, repairs, or others), supporting documents to substantiate the cost incurred
d) Documents to substantiate the expenditure incurred (such as brokers commission) wholly and exclusively in connection with the transfer

Long-term capital gains arising from the transfer of your house would be taxable in India at the rate of 20% (plus applicable surcharge and education cess) irrespective of whether you are a resident or a non-resident for Indian income-tax purposes.

The gains may also be taxed in the US according to the local tax laws. However, as per the India-US double taxation avoidance agreement (DTAA), you should be eligible to claim the credit of taxes paid in India against those paid in the US.

But if you invest such capital gains in acquiring or constructing another residential house property in India, then such gains as appropriated towards the new acquisition or construction would be exempt from tax.

To claim the exemption, you would need to purchase the new house within a period of one year before or two years after the transfer takes place, or construct a residential house within three years of the date of transfer.

The amount of capital gains that are not appropriated towards purchase or construction of the new residential house before the due date for furnishing of return of income can be deposited in a bank account under the Capital Gains Accounts Scheme, 1988, without any tax incidence. Such an amount would have to be utilized for the purchase or construction of the new asset within the prescribed time period. Unutilized amounts would be taxable as income of the previous year in which the period of three years from the date of the transfer of the original asset expires.

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