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Income from sale of property subject to capital gains tax
June, 19th 2015

I am a non-resident Indian (NRI) and want to purchase property in India. Later on, if I want to sell the property, how will this transaction be taxed? Is the way to save on long-term capital gains (LTCG) the same as that for a resident Indian?

As per Indian tax laws, income earned from the sale of property is subject to capital gains tax. Gain arising from transfer of long-term property (i.e., property held for more than 36 months) is considered as LTCG. It is taxed at the rate of 20% (excluding surcharge and education cess).

If before the transfer date, the property was held for a period of 36 months or less, then gain will be short-term capital gain and will be taxable at progressive tax rates ranging from 10% to 30% (excluding surcharge and education cess).

LTCG can be claimed exempt to the extent it is re-invested in India in specified bonds or a residential house (to be either purchased within two years or constructed within three years of transfer of property). There are certain restrictions, however, on the sale of the new asset purchased and the quantum of investment that can be made in bonds.

If due to some reason, the capital gains remain un-invested until the due date of filing of tax return in India (i.e., 31 July), then there is the option to put the amount of capital gains into a Capital Gains Account Scheme with a bank (not later than the due date of filing your India tax return). And then you can subsequently withdraw this amount for the purpose of reinvestment.

If a nephew, who is a US citizen, were to gift shares in his foreign company to his father’s brother, who is a resident Indian, would the uncle have to pay gift tax in India?

There is no gift tax as such in India. However, income tax is levied on the recipient of any sum of money, movable property or immovable property if received by that individual in India without consideration (i.e., without a quid pro quo), except where such gifts are received from a relative.
The definition of the term “relative” under the Income-tax Act, 1961, includes spouse, maternal or paternal aunts and uncles (and their respective spouses) and the individual and his spouse’s siblings, grandparents, parents, children and grandchildren (and their respective spouses).

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