Understanding the income tax implications for non-residents selling ancestral property in India

• November 10, 2023
• CA Chandan Agarwal's Office

Non-residents have to pay tax on the sale of ancestral property as long-term capital gains. The cost of acquisition for capital gain purposes will be the fair market value of the house as of 1st April 2001

My father bought a house in Mohali in 1986. The how has now been transferred to me and my brother after the death of my parents. My brother lives in India and I am a Citizen of Canada since 2008. Now we are selling that property. Do I have to pay tax on that sale and How much?

Non-residents have to pay tax on the sale of the ancestral property the way a resident has to. Since the house is held for more than 24 months after its purchase, the profits will be treated as long-term capital gains.

In respect of capital assets received as inheritance or gift the price paid by the previous owner who had paid for it is taken as your cost. Since the house was acquired before 1st April 2001, your cost of acquisition for capital gain purposes will be the fair market value of the house as of 1st April 2001.

For obtaining the fair market value either you can take the circle rate or stamp duty rate of the house on that date. In case the circle rate is not available, you will have to obtain a valuation report from a registered valuer. Please note that the value as per the valuation report can not be higher than the stamp duty/circle rate.

The cost is to be further increased by applying the cost inflation index of the year of sale. The difference between the sale price and the indexed cost is your long-term capital gains and is taxed at a flat rate of 20%. You can save such long-term capital gains by investing such indexed long-term capital gains in a residential house or specified capital gains bonds within the prescribed period.

Since you are a non-resident for income tax, the buyer is under an obligation to deduct tax at 20% of the long-term capital gains so computed in respect of your share in the property if you furnish the documentary evidence in support of the cost. If you do not provide proof of your cost, the buyer will deduct tax at 20% on the whole of the sale consideration.

In case you do not have any other income taxable in India, you will have to pay tax @ 20% on such capital gains as non-residents are not allowed to set off the shortfall in the basic exemption limit against long-term capital gains.

Source: https://www.livemint.com/money/ask-mint-money/understanding-the-income-tax-implications-for-non-residents-selling-ancestral-property-in-india-11699508278072.html