My friend is a Non Resident Indian (NRI). He wants to sell a piece of land in India. A long-term capital gain (LTCG) A tax of 20% is levied on the capital gain since the purchase of the property in 2015. If he transfers registration to his Indian resident wife and then sells the property, the tax will be deducted at source (TDS) reduce to 1%?
– Name withheld on request
Under Indian Income Tax Law, if the “seller” of a property (other than agricultural land) qualifies as “resident in India” during the financial year in question and exceeds the sales allowance £50 lakh the buyer has to deduct 1% TDS.
If the "Seller" qualifies as "Non-Indian Resident", the Buyer must deduct TDS at a set rate of taxable capital gains from the sale of real estate. The stated rate is 20% (plus applicable supplements and health and education taxes) for long-term capital gains and 30% (plus applicable supplements and health and education taxes) for short-term capital gains. Alternatively, the buyer or seller can contact the income tax officer to apply for a lower or no TDS certificate.
The NRI seller may transfer ownership as a gift on behalf of his resident wife. However, such a transfer incurs stamp duty, registration and documentation costs.
Due to the income clubbing provisions of the Income Tax Act, investment income is pooled in the hands of the NRI seller who pays income tax in India on LTCG.
Clubbing doesn't just apply when the transfer is separated for a reasonable consideration or in connection with an agreement to live. Given the clubbing provision, the buyer may prefer to deduct TDS at a higher rate only on behalf of the NRI seller.
Sonu Iyer is a tax partner and head of HR at EY India.
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