My brother, who has been an Australian citizen for the past 30 years, had bought a house in Kerala in 1994 for his parents. The total cost was around ₹6 lakh. On their death, he is now planning to sell it for ₹ 1 crore. Will you please explain the tax implications, taking into consideration the new amendments in cost inflation index. What formalities should be followed for effecting the sale, he being an NRI? Also explain how he can save tax on long-term capital gains.

George Thomas

Gains arising from the sale of a capital asset in the nature of a house property held for more than 24 months shall be taxable as long- term capital gains (LTCG) as per the Income Tax Act, and taxable at the rate of 20 per cent plus the applicable surcharge and health and education cess at the rate of 4 per cent.

The cost of acquisition will be higher of cost price or fair market value (FMV) as on April 1, 2001. While computing LTCG, the cost of acquisition determined as above shall be indexed using the prescribed cost inflation indices (CII). As your brother is planning to sell the property in the current year, FY 2019-20, the indexed cost of acquisition should be computed as under: Costs of acquisition x (CII for 2019-2020 / CII for 2001-2002)

CII for 2019-2020 is 289 and CII for 2001-2002 is 100. As the FMV as on April 1, 2001, is not made available, LTCG is computed assuming ₹ 6 lakh as the cost of acquisition. LTCG would be ₹82, 66,000 (₹1,00,00,000 - (₹6,00,000 x 289/100)).

As per Indian registration regulations, a sale deed is required to be registered. No separate process/procedure has been defined under the I-T Act for selling of house property in India by an NRI.

According to foreign exchange regulations, an NRI can transfer any immovable property in India to a person residing in India and also acquire an immovable property in India (other than agricultural land/farm house/plantation property).

1. Tax exemption/deduction available under Sections 54 and 54EC: As per Section 54 of the I-T Act, any LTCG arising to an individual from the sale of a residential house property shall be exempt from tax: If such LTCG is invested in purchase of another residential property in India either one year before or two years after the date of sale; or invested in constructing a property within three years after the date of sale.

2. For claiming such exemption, the new property purchased should not be transferred within three years from the date of acquisition. However, two residential house properties could be purchased/constructed if the LTCG does not exceed ₹2 crore.

LTCG could be deposited in the Capital Gain Account Scheme (CGAS) for the purpose of utilising the money in making the requisite investments. However, such deposits should be made on or before the due date of filing tax returns.

3. Deduction under section 54EC of the I-T Act can be claimed against LTCG arising on sale of residential house property upon investment in specified bonds (including National Highways Authority of India (NHAI) or Rural Electrification Corporation bonds) of up to ₹50 lakh. Such an investment should be made within six months from the date of transfer of such capital asset, and the lock-in period is five years.

Hence, your brother can claim exemption by investing in bonds only when such investments are made within six months from the date of transfer of the house property. The option of depositing the capital gains in CGAS is not available for exemption in this category.

The writer is Partner, Deloitte India.

Send your queries to taxtalk@thehindu.co.in

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