I am an NRI, want to sell ancestral property in India. Income Tax Rules Explained

Whether you are an NRI or an Indian resident, the tax provisions for the sale of inherited property are the same. Since the property was acquired in 1961, any gains from its sale will be taxed as long-term capital gains. For the purpose of computing capital gains, you need to take the fair market value of the asset as on April 1, 2001, as your cost. You need to obtain a valuation report for the fair market value of the property as on 1st April 2001 from a registered appraiser.

The fair market value cannot exceed the stamp duty valuation of the property on that date. Such fair market value of the asset is to be indexed with the cost inflation index of the year of sale. Your taxable long-term capital gain is taxable @ 20% (surcharge and cess) after deducting contingencies for sale, deducting it from the net selling price and indexed cost.

Yes, tax deduction will be applicable on this transaction. Since you are a non-resident for tax purposes, the buyer needs to deduct tax at source as per section 195 @ 20% on taxable capital gains irrespective of the sale price of the property. In order to correctly calculate the taxable amount of long-term capital gains for the buyer, you need to share relevant documents such as the valuation certificate and the expenses incurred for the sale transaction. If you want the buyer not to deduct tax at source, you can approach the Income Tax Officer of the jurisdiction to issue you a certificate for non-deduction of tax at source.

If you buy a residential property within a specified period and/or invest indexed long-term capital gains in capital gains bonds within six months from the sale of the property, you can save long-term capital gains.

Balwant Jain is a tax and investment specialist and can be contacted on Twitter at jainbalwant@gmail.com and @jainbalwant.

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