LTCG Tax on property sale for a PIO whose only Indian income is int. on NRO deposits

Hi Pankaj,

First, many thanks for providing this valuable service.

I intend to sale a flat after April 2012. Assuming the DTC has become law by then I wish to understand how the capital gain will be calculated and taxed: (a) Will the gain continue to have the benefit of indexation as of now? (b) Will this reduced gain be just added to the total interest (if any) earned on NRO deposits as there is no other income in India? (c) Will the tax already deducted by the Bank before payment (TDS) be used to adjust the CGT?


asked Aug 16 '11 at 03:36 by alpha0123 1111

Indexation concept will still continue after direct tax code as well.

For long term gain (after one year of purchase), instead of flat rate of 20% of gain after indexation benefit, new concept has been introduced. Now gain after indexation will be added to taxable income and taxed at per the tax slab. Base date for cost of acquisition has been changed to 1st April, 2000 instead of earlier 1st April, 1981.

So your total taxable income in India will be bank interest plus the long term gains (with indexation computations).

If extra TDS has been deducted by bank on interest, then same can be adjusted against tax payment on LTCG.

answered Aug 18 '11 at 22:03 by Pankaj Batra 5.2k320

Many thanks. I read somewhere that indexation is not allowed to NRI sellers? Is this correct? Pl. see below: ""The benefit of the cost inflation index is not available to non-resident Indians (NRIs). Apart from the adjustments arising from the cost-inflation index the various expenses incurred on improvements to the asset, and on transfer of the asset, for example stamp duty, legal fees, payment of brokerage etc, are deductible from the full value of the sale consideration", Lakhotia points out. "It is the net resultant figure that will be treated as a long-term capital gain or loss chargeable to income tax in terms of Section 112 of the Income Tax Act", he says. Source: TimesProperty Dt:17-9-10" Cheers.
(Aug 25 '11 at 02:32) alpha0123
Yes, it is correct as per section 48 with section 115D. If capital gains arises to a NRA from the transfer of a long-term capital asset, other than capital gain arising from the transfer of shares/mutual funds, the benefit of indexation will not be available.
(Aug 25 '11 at 17:00) Pankaj Batra
I am a little confused. In section 49 of the Income Tax Act I found the following: "Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, [other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso], the provisions of clause (ii) shall have effect as if for the words “cost of acquisition” and “cost of any improvement”, the words “indexed cost of acquisition” and “indexed cost of any improvement” had respectively been substituted". Surely the clause says indexation is allowed to an NRI except in the case I have put within [...] above. So, indexation should be allowed for property transfer? Kindly explain.
(Aug 25 '11 at 22:44) alpha0123
There is bit confusion and above laws are bit contradictory. 1. No indexation benefit is available for capital gains of shares and debentures. 2. Indexation can be applied to immovable property as per section 49. 3. Under chapter XIIA and section 115D, no indexation is allowed for capital assets (other than share, debentures, securities) acquired by NRI out of convertible foreign exchange. I would advise you to clear this with an experience tax professional/CA to figure out whether case 3 applies to you or not. If not, you can avail indexation benefit as per case 2.
(Aug 26 '11 at 13:28) Pankaj Batra

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Asked: Aug 16 '11 at 03:36

Seen: 2,683 times

Last updated: Aug 26 '11 at 13:29