List of queries asked by an NRI about Capital Gain tax on sale of property

Mr. Abrahim an NRI living at UK is corresponding with me regarding the capital gain tax on sale of property in Bangalore. Here are his queries and my answers –

Dear Mr. Abrahim,

1. I am an NRI seller. I want to sell my house in Bangalore and reinvest it in UK. Pl let me know if I can get capital gains exemption if I construct a flat or a block of flats in London. I constructed my property in India in 1991

Reply: Any long-term capital gain arising on the transfer of a residential house to an individual (including NRIs) will be exempt from tax if the taxpayer has within a period of one year before or two years after the date of such transfer purchased, or within a period of 3 years constructed, one residential house in India. So, in your case, you can’t get tax exemption if you construct a flat in London.

[Recommended Read: Selling a House or Flat? Know provision of Capital Gain Tax]

2. I am a senior citizen (67 Years) and if my house is sold for under Rs.50 lakhs, is there any extra concession available?

Reply: In case of Non Resident Indian (NRI), the basic exemption limit (i.e., Rs.3 Lakhs per year) shall not be available. So, you won’t get any extra tax benefit as a senior citizen. Secondly, the sale price of the property is immaterial for computation of capital gain. Even if the sale price is less than Rs.50 Lakhs, there is no concessional tax applicable.

3. I understand I have to invest the capital gains on the difference value, in a flat or bonds so I can take the rest of the money with me to invest in the UK. Is it correct?

Reply: As I mentioned above (in Point 1), if you make a reinvestment of capital gain (sale price less indexed cost of purchases) in a residential house (independent or flat) in India, you can avail the tax exemption.

Secondly, you can also invest in Capital Gain Bonds up to Rs.50 Lakhs and avail tax benefit. You are allowed to make both i.e., investment in house property as well as investment in capital gain bond simultaneously and avail the tax benefit.

Finally, your understanding is right. You can repatriate rest of the money. For clarity, let me explain this with an example. Suppose, you sell a property for Rs.75 Lakhs in July 2015 and the indexed cost of purchase works out to be Rs.45 Lakhs. The capital gain on this transaction is Rs.30 Lakhs, right? If you invest this amount (Rs.30 Lakhs) in Capital Gain Bond or in another flat/house, the balance amount of Rs.45 Lakhs can be repatriated without paying any taxes.

[Recommended Read : Practical issues in capital gain on sale of property]

4. Can I add electric/water bills and tax paid to the expenses?

Reply: Cost of acquisition is the amount for which the property was originally purchased by you. It is the sum total of amount spent for acquiring the property. Only those expenditure incurred in connection with the purchase of property such as brokerage paid, registration charges and legal expenses can be added to the cost. So, electricity charges or water charges paid towards maintenance of the property can’t be added to the cost of acquisition.

5. What about travel expenses to and from the UK for maintenance of the house?

Reply: As I mentioned in the previous question, any expenditure towards the maintenance of the property can’t be considered as cost of acquisition.

6. Am I exempted from wealth tax if the house is kept vacant?

Reply: No wealth tax shall be leviable w.e.f 1.4.2015 onwards (i.e, FY 2015-16). However, the provisions relating to wealth tax are applicable upto FY 2014-15 (upto March 2015).  In your case, even for previous years’ it is not applicable because, one house belonging to an individual (including NRI) is exempt from wealth tax.

7. Is the money I sent to my son for his education deductible?

Reply: You mean, deductible from capital gain? Definitely No. Only the cost of acquisition is deductible. The amount spent by you on your sons’ education is personal in nature and has nothing to do with the capital gain on the sale of property.

[Recommended Read: Common issues faced by buyer and seller of immovable property]

8. I was abroad in 2014, but now I have been in India since 3rd April and I will be here till 7th September. Will there be any change in my tax?

Reply: An individual (Indian citizen or a person of Indian origin) is Resident in India, if he stays in India for 182 days or more during the previous year. In your case, you will continue to be a Non-Resident Indian (NRI) since your stay is less than 182 days. So, there won’t be any change in your taxes.

9. One more question! If I have to visit India only for the purpose of selling the property, can my travel expenses be reduced from sale value?

Reply: Good question Sir! Expenditure incurred wholly and exclusively in connection with transfer of property is deductible from sale value. Examples of such expenses are brokerage or commission paid for securing a purchase, cost of stamp or registration fee borne by you (generally it is borne by the buyer), legal expenses paid to advocate, etc. Even traveling expenses incurred in connection with transfer can be claimed provided your visit is wholly and exclusively for sale of the property.

Hope I have clarified all your doubts, In case you have any more doubts, please feel free to contact me.

Thought for the day

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