The LTCG is taxable at 20% plus surcharge

I’m an NRI and might inherit some properties in India. What is the process of selling the properties and will there be any tax liabilities? Are there any legal ways to minimize such tax liabilities? Do I need a PAN and Aadhaar card for the transaction?

—Name withheld on request

Under the income tax law, the value of any asset received under a will or by way of inheritance is not taxable in India. However, the income arising from the transfer or use of inh-erited property will be taxable.

The sale of immovable property will be taxable in India in the year of sale. Any immovable property held for a period of more than 24 months is classified as a long-term capital asset (LTCA). For inherited property, the holding period would be calculated from the date of acquisition by the original owner. If the property was acquired by the original owner prior to 1 April 2001, the cost can be substituted with fair market value (but not exceeding the stamp duty value on 1 April 2001), if such fair market value is higher than the original cost.

The long-term capital gain (LTCG) is taxable at 20% plus applicable surcharge and health and education cess.

The LTCG from the sale of residential property can be claimed as exempt from income tax to the extent there is reinvestment in India in specified bonds (within six months from the date of transfer) or one residential house in India (to be either purchased within one year before or two years after or constructed within three years of transfer of the LTCA). Also, there is a one-time option to invest in two houses in India if the LTCG doesn’t exceed 2 crore.

If the LTCG remains uninvested till the due date of filing of tax return, you may deposit the amount in a capital gain account scheme and subsequently withdraw this amount for reinvestment in a new residential house within the stipulated period. If the entire amount is not reinvested or not deposited in the scheme, the remaining portion of the LTCG will be taxable.

To file the ITR and for the buyer to deduct TDS, you will be required to obtain PAN.

Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at [email protected]

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