I am an NRI, wishing to dispose of a residential property approx valued at 4cr Held since 1980 Please advise on 1/ my status has been a Resident indian - as a pensioner so far- but wish to take the proceeds abroad. Should I open an NRO acct and get sale proceeds thereand then transfer funds abroad- as can do USD 1 mill/year under LRS. As an NRI Any problems / complications in that? 2/ as there is a Tax treaty with India/ US , will IRS accept my tax payment in India or govern me under US laws? And tax me again? 3/To correctly assess Cap Gains and pay tax- I believe that prior to 2001 The cost inflation index is to be done as per FMV of 2001 Who decides this FMV in 2001 - ? Brokers or Govt?

Ans: Indexation benefit will be available from the date of payments made to the builder.

If you want to avail tax exemption by investing in bonds, you have to invest amount of taxable capital gain (derived after taking benefit of indexation), in bonds within 6 months of transfer of property.

Accordingly, sale proceeds can be realised in regular saving account and can be kept till the time you invest in specified bonds.

Ans: You will have to pay LTCG on old property sale @ 20% with indexation which would ~7.6L

Sec 54F benefits are applicable for second property. Since you already have 4 properties in your name I believe you won't be eligible to claim benefit from LTCG accruing out of MF sale transferred to acquire RE property, however suggest you seek alternate opinion from CA.

Ans: I am not a legal expert. However, you need to be aware of capital gains taxes on selling your house property. Further, if it is a residential house property which is held for more than 2 years then you also qualify for a deduction on your gains that you make.

Please note recent budget changes in India on 23 July 2024 will be applicable and you may not get the indexation benefits on the property.

As an NRI, you can only take out USD 1M from your NRO account per financial year.

Please consult your CA before moving ahead.

Ans: The biggest change is that the benefit of indexation gets withdrawn. In simple terms, now you cannot adjust the purchase cost of the property for inflation to bring down your taxable capital gains.

Flat Tax Rate: The LTCG from property shall now be taxed at a single 12.5% plus applicable cess.

The base year for computation of capital gains in respect of properties acquired before April 1, 2001, has now been shifted from 1981-82 to 2001-02.

Point to Note:
Fair Market Value (FMV) as on April 1, 2001: You may opt to consider the FMV of the property as on April 1, 2001, as your cost of acquisition for the purpose of computing capital gains.

Assuming you opt for FMV as on April 1, 2001:

FMV as on April 1, 2001: Rs. 32 Lakhs (as per your valuation report)
Sale Price: Rs. 5 Crores
Capital Gain: Rs. 5 Crores - Rs. 32 Lakhs = Rs. 4.68 Crores
Tax: Rs. 4.68 Crores * 12.5% = Rs. 58.5 Lakhs
Availing LTCG
1. Section 54EC Bonds:

Invest the amount of LTCG in bonds issued by NHAI, REC, IRFC, or PFC within 6 months from the date of sale.
You can claim full exemption from tax on LTCG.

2. Section 54F:

Invest in a new residential house within 2 years from the date of sale.
You can claim exemption from LTCG tax to the extent of the cost of a new house.

3. Capital Gains Account Scheme:

Deposit the amount of LTCG in a Capital Gains Account Scheme within 6 months from the date of sale.
You get 3 years to invest in a new residential house.
If invested within 3 years, no LTCG tax is payable.

Flats Purchase
There is no specific limit as to how many flats one can purchase from the sale proceeds. However, if you are investing the amount to claim exemption under Section 54F, the property should be for self-occupation.

Loans and Tax Implications
You can use the sale proceeds to repay your loans, including the ones taken in October 2023. But it will not qualify for LTCG exemption. In case you fail to invest the LTCG amount to claim exemption, then you will have to pay tax on the LTCG as computed above. However, the property purchased on October 2023 can be considered for LTCG exemption. Please consult a tax advisor one on one to get clarity on this.

Best Ways to Invest and Save on LTCG
Prioritize Section 54EC bonds for full exemption.
If you plan to buy a new house, consider Section 54F or CGAS.
Consult a tax professional for other possible ways of saving taxes that might pertain to you.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: When you sell an ancestral property, you need to calculate the capital gains to determine your tax liability. Since your property was acquired in 1950, the cost of acquisition will be indexed for inflation, and you'll calculate the capital gains based on the fair market value (FMV) as of 1st April 2001.

1. How the Capital Gain Tax Will Be Computed?
Steps to Compute Capital Gains:

Fair Market Value (FMV) as of 1st April 2001: Since the property was purchased in 1950, you can choose the FMV as of 1st April 2001 as your cost of acquisition. This is crucial for calculating the capital gains accurately.

Indexed Cost of Acquisition: The FMV as of 1st April 2001 is adjusted for inflation using the Cost Inflation Index (CII) to arrive at the indexed cost of acquisition. The formula is:

Indexed Cost of Acquisition = (FMV as of 1st April 2001) x (CII of Year of Sale / CII of 2001-02)

Calculation of Capital Gains: The capital gains are calculated as:

Capital Gains = Sale Value - Indexed Cost of Acquisition - Any Expenses on Transfer

Tax Rate: Since the sale occurred in August 2024, the new capital gain tax rule applies at 12.5%. You cannot choose the old capital gain tax rule as it is not applicable to sales made after 1st April 2024.

Example:

Let's assume the FMV as of 1st April 2001 is Rs. 10 lakh, and the property was sold for Rs. 1 crore in August 2024. The CII for 2001-02 is 100, and the CII for 2024-25 is 348 (hypothetical for illustration).

Indexed Cost of Acquisition = Rs. 10 lakh x (348/100) = Rs. 34.8 lakh

Capital Gains = Rs. 1 crore - Rs. 34.8 lakh = Rs. 65.2 lakh

Capital Gains Tax = 12.5% of Rs. 65.2 lakh = Rs. 8.15 lakh approximately

2. Is It Mandatory to Get FMV as on 1.4.2001 from Govt Registered Valuer?
Importance of FMV from Registered Valuer:

Accuracy and Compliance: It is highly recommended to get the FMV as of 1st April 2001 from a government-registered valuer. This ensures that the FMV used in your capital gains calculation is accurate and in compliance with the Income Tax Department's guidelines.

Documentary Evidence: In case of any scrutiny by the Income Tax Department, a valuation report from a registered valuer will serve as strong documentary evidence, safeguarding you against any disputes regarding the FMV.

Mandatory?

Yes, for Precaution: While it may not be legally mandatory to get the FMV from a registered valuer, it is strongly advised to do so to avoid potential issues with tax authorities. Without it, the Income Tax Department may question the FMV you have used, leading to complications.
3. How to Claim 1% TDS Deducted on Sale Value?
Understanding TDS Deduction:

Section 194-IA: When a property is sold, the buyer is required to deduct 1% TDS on the sale value if the sale consideration exceeds Rs. 50 lakh. This TDS is deducted at the time of sale and deposited with the government.
Claiming TDS Credit:

Form 26AS: Ensure that the TDS deducted is reflected in your Form 26AS, which is a consolidated tax statement issued by the Income Tax Department. This form shows all TDS credited to your PAN.

Filing Income Tax Return (ITR): While filing your ITR, you can claim the TDS deducted against your total tax liability. The 1% TDS will be adjusted against your total tax liability, and if your total tax liability is less than the TDS, you can claim a refund.

TDS Certificate: The buyer should provide you with a TDS certificate (Form 16B) as proof of the TDS deducted. Ensure you have this certificate when claiming the TDS credit.

4. Can I Choose Between Old and New Capital Gain Tax Rule?
Applicability of Tax Rule:

New Capital Gain Tax Rule: Since your property was sold in August 2024, the new capital gain tax rule is applicable. The new rule imposes a flat rate of 12.5% on long-term capital gains for property sales made after 1st April 2024.

No Option to Choose: You do not have the option to choose the old capital gain tax rule, as it is only applicable to property sales made before 1st April 2024. The government has mandated the new tax rule for all property sales post this date.

Reinvestment to Save on Capital Gains Tax
Section 54:

Reinvestment in New Property: To save on capital gains tax, you can reinvest the capital gains in purchasing a new residential property. Under Section 54 of the Income Tax Act, if you reinvest the capital gains within two years from the date of sale, you can claim an exemption from capital gains tax.

Capital Gains Account Scheme (CGAS): If you are unable to reinvest the capital gains before the filing of your ITR, you can deposit the capital gains in a Capital Gains Account Scheme (CGAS) with a bank. This allows you to claim the exemption while you decide on the reinvestment.

Time Limits: You must reinvest the capital gains within two years (for buying) or three years (for constructing) a new property to avail of the exemption under Section 54.

Final Insights
Selling ancestral property involves various tax implications. By understanding how capital gains are calculated, getting an FMV from a registered valuer, and claiming TDS, you can efficiently manage your tax liability. While the new capital gain tax rule at 12.5% applies to your sale, you can reinvest the gains in a new property to claim an exemption under Section 54. Always consider consulting with a Certified Financial Planner to ensure all aspects are covered and compliance is maintained.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in