Tax on Income of NRI from property sale in India


If you live outside India e.g. USA and sell property in India - here are things to know.

Determine Capital Gain

  • Take cost of purchase.
  • Use Inflation Index to determine your house price now. (e.g. if you buy a house in 2003 in 25 lakhs, it will be approximately 50 lakh in 2015)
  • Sale price - cost today  = Profit.  Profit is called capital gain tax.  (e.g.  if you sold house in 70 lakh.  Your Capital gain is 70-50=20 lakh)

Short Term vs Long Term Capital Gain

USA (1 year)

If you sold the property after 1 year of buy - it is Long term capital gain. If you sold it in less than in a year after purchase - it is Short term capital Gain.

In USA - Short term capital gain is treated as same rate as your income.

In USA - Long term capital gain is taxed at 10%

India (3 year)

If you sold the property after 3 year of buy - it is Long term capital gain. If you sold it in less than 3 year after purchase - it is Short term capital Gain.

Short term or Long Term Capital Gain is taxable.

Short Term capital gain tax in India:

Long term capital gain tax in India : 20%

Where to pay Tax

In theory one can pay tax in India or in USA.

However for Capital gain tax - consider below factor.

At time of property sale, buyer will deduct 1% or 20% of sale price as advance TDS in India.  (e.g. for 70 lakh house 70% will be deducted as advance TDS.  If Capital gain is 70-50 =20 lakh.  20% of it is tax - 4 lakh.)

If you need to get money from  India to US (or other country) you need to show evidence that you have filed tax in India.

So you should pay tax in India, file tax return.  1% of property price is already held. If total tax is 4 lakh, you need to pay 4 lakh - 70K = 3,30,000 rupees.

Tax saving option

In India if you have capital gain from property sale - you can use this to invest in other property. If you invest in other property you need not have to pay tax.

Thing to note is in India you have to invest in residential property. You can't invest in commercial property to save tax.  You should invest in residential property within 2 year of sale (or construct a house within 3 year)

1. As per India law - you only get this benefit if you are investing in other property in India.  If you buy property outside India - the benefit is not available

2. In India you can buy Capital gain bonds (e.g. NHAI, REC) on capital gain money.  If you buy these bond, then you need not have to pay tax.  However your money get locked for 3 year.  At maximum you can invest up to 50 lakh in a financial year.

This option work for Indian resident. As per US law you still need to pay tax if you have not paid tax in India.

3. As per US law - if you invest Capital gain from property sale in buying other property then you need not have to pay tax on this.  (It get postponed till you sell your newly bought home)