If you are a resident of the United States, you must report capital gains from losses on the sale of your property in India in accordance with Section D of Form 1040. You can deduct the amount paid on income tax paid in India from the capital gains tax due to the US government because both countries have a double taxation treaty. Before proceeding, please mention here that all real estate transactions involving an NRI must comply with the guidelines of the Foreign Exchange Management Act (FEMA) of 1999. The law establishes rules and procedures for all foreign exchange transactions that take place in India. The Enforcement Directorate (DE) is femA`s enforcement authority. Selling real estate usually has tax consequences and foreign ownership adds another layer of complexity. For tax reasons, it is better to sell real estate from January to March. India`s fiscal year ends in March, while U.S. taxes follow the calendar year. Each sale is unique, so the tax implications and other issues may also be different. So, before deciding when to sell, consult an expert to see possible tax remedies and reduce transaction costs.
Since various authorities are involved, we recommend having an auditor in India and a financial and tax advisor like MYRA in the US to help you through the process. After selling the property, you need to get 2 certificates from an auditor in India if you are sending the product outside the country. These certificates are Form 15A Declaration of Remitter and Form 15CB Certificate of an Accountant. You will need these forms to verify that your money comes from legal sources and that all taxes have been paid. Capital gains from the sale of a property can be reinvested in India to reduce tax obligations. If you invest the capital gains in the purchase of another property within two years, the profit made as a result of the sale is exempt from tax. Similarly, under Article 54EC, you can invest the profit from the sale of immovable property in capital gains bonds within six months of obtaining an exemption. These bonds offer an interest rate of approximately 5.75% per annum* and have a five-year lock-up.5 Yes, the capital gains tax provisions for an NRN are similar to those of a resident natural person, except for the applicability of the provisions of the SDT.
As with resident investors, the capital gains tax for an NRI depends on the holding period and the type of property sold. It is important to note here that prior to the announcement of changes in this regard in Budget 2017, the long-term asset holding period was three years. It was cut by one year in the 2017 budget to make sales and purchases more attractive to investors. Typically, during a fiscal year that lasts in India from April to March, you can transfer a maximum of $1 million from your NGO to a U.S. account. This limit applies if you inherited the property or purchased it from funds from your NGO account. You will need permission from the Reserve Bank of India before you can transfer funds in excess of the $1 million limit. In an effort to end tax evasion by NRI investors, the government has held buyers responsible for deducting various taxes on purchases of NRI properties.
This is done for the reason that buyers who are likely to be based in India are easy to sue in case of misconduct. NRI seller tracking can become a difficult task for a variety of reasons. If an NRI has inherited a property, the cost (and date of purchase) of the property becomes the basis for calculating capital gains tax for the previous owner. To take advantage of this exemption, you can invest the profits for the purchase of a property either one year before the sale, or 2 years after the sale of your property. You can also use the profits when building a property, which must be completed within 3 years of the date of sale. Under this section, an INR that sells a long-term asset within six months of the date of sale and invests the amount of capital gains in NHAI and REC bonds is exempt from capital gains tax. The bonds will remain locked-in for a period of three years. You should therefore know the rules in force in your country of residence and whether there is a double taxation agreement (DBAA) with India. For example, if you are a U.S.-based NRI, you may be required to report capital gains or losses from the sale of real estate in India in accordance with Section D of Form 1040. . .