I’m a US citizen holding an OCI (Abroad Citizen of India) card. I personal three flats in India that I bought within the early 2010s. I plan to promote two of them—one in December and the opposite in February 2025. In opposition to the sale of those two flats, I plan to purchase two new flats. Can I get the advantage of reinvestment? And is there any restrict for reinvestment?
-Identify withheld on request.
Your flats would qualify as ‘long-term capital belongings’, whose threshold is outlined to be a holding interval of greater than 24 months previous the date of switch.
Vide Finance Act (No. 2) 2024, non-residents can now not profit from indexation, however the tax price has been decreased from 20% to 12.5% (plus relevant surcharge and cess). Nevertheless, you’ll be able to nonetheless declare an exemption from tax on capital features below part 54 when you reinvest the capital features into a brand new residential property (both by means of a purchase order or development). In opposition to every sale of a residential property, you’ll be able to reinvest the proceeds as much as the quantity of capital features into a brand new residential property. Part 54 doesn’t restrict what number of instances you’ll be able to declare this exemption in a fiscal yr, and therefore the capital features tax exemption for each the sale occasions (December and February) may be claimed collectively throughout 2024-25.
With a purpose to declare the exemption, the prescribed time interval to buy a brand new residential property is one yr earlier than or two years after the date of sale. Nevertheless, suppose you haven’t bought the corresponding new residential properties by 31 July 2025. In that case, you will want to deposit the unutilized capital features in a ‘capital features account’ opened below the Capital Beneficial properties Account Scheme, which should be used inside the prescribed two-year interval. There’s additionally a lock-in interval of three years for the brand new residential property, failing which the quantity of exemption earlier claimed shall be taken again.
The Finance Act 2023 has launched a cap of ₹10 crore on the price of the brand new property to say the capital features tax exemption. If the fee exceeds ₹10 crore, the surplus capital features shall be taxed. This restrict applies individually to every reinvestment.
The India-US double tax avoidance settlement doesn’t present any particular aid from capital features tax in India. And regardless of claiming exemption below part 54, you should still be liable to pay tax within the US on the quantity of capital features computed as per US tax legislation. You’re advisable to seek the advice of a certified US tax skilled to grasp your US capital features tax implications.
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Harshal Bhuta is accomplice at P.R. Bhuta & Co.