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shree19772000 03-19-2009 02:45 PM

Sell property in India to fund a home purchase in US
 
I was wondering if I can sell my apt in india to find my home purchase here. Will it be taxable here? I am thinking I will get close to 50,000 dollars for it. Will it be exempt under capital gains. Will indian govt. have objection to this transaction or is it exempt there too.

Experts please answers...

DSLStart 03-19-2009 03:02 PM

Yes, you can sell the property in India and can buy other property in India/abroad to avoid paying capital gain tax. If you use that money in US for buying property you will not be taxed in US.

Quote:

Originally Posted by shree19772000 (Post 327993)
I was wondering if I can sell my apt in india to find my home purchase here. Will it be taxable here? I am thinking I will get close to 50,000 dollars for it. Will it be exempt under capital gains. Will indian govt. have objection to this transaction or is it exempt there too.

Experts please answers...


pointlesswait 03-19-2009 03:16 PM

lol
 
you can sell...but?
a.) you will have to pay capital gains tax in India? i don't think u can get any exceptions in india... why would the indian govt...not tax you...but let you take the money and invest outside the country..its just simple commonsense..dude

also...

b.) Check with RBI.. there is a limit of how the $ amt that an individual can ship out from india..i was told it is 25K...





Quote:

Originally Posted by shree19772000 (Post 327993)
I was wondering if I can sell my apt in india to find my home purchase here. Will it be taxable here? I am thinking I will get close to 50,000 dollars for it. Will it be exempt under capital gains. Will indian govt. have objection to this transaction or is it exempt there too.

Experts please answers...


DSLStart 03-19-2009 03:21 PM

For long-term capital gains earned on sale of property, the tax rate is 20%. If the value is above Rs 10 lakh, the tax rate climbs to 22.66%. This applies both to residents as well as non-resident Indians (NRIs). Sec. 54 of the Income Tax Act offers a way out of paying such tax. If the capital gain amount is invested in a residential house within one year before to two years after the sale, then the capital gains earned are fully exempted from tax. In case the investor intends to construct a house, the time limit is extended to within three years of the date of sale. Of course, if only a part of the capital gain is used, the exemption would be proportional and the excess will be chargeable to tax.
Now comes the interesting part, especially for NRIs.
Nowhere does Sec. 54 specify that the new house purchased should be within India.
This means, to save capital gains earned in India, the NRI can even purchase a house in his or her own host country abroad and yet claim exemption. Why just NRIs, now even resident Indians can benefit from this rule. RBI allows an Indian resident up to $1,00,000 per annum to be invested abroad. Such investment could be even in property. So far, this was just a theoretical possibility based on a plain reading of the law. However, in a recent judgment, the Income Tax Tribunal has ruled that the exemption offered by Sec. 54 can indeed be extended to a property purchased in a foreign country.
It's not even necessary that the same amount of capital gains be used to buy the property. The assessee can very well buy the property even on mortgage (housing finance) -- as long as the conditions specified in Sec. 54 are satisfied, the exemption is available. This is because, even for properties bought using mortgage, the borrower instantly becomes the owner of the property. That he is paying his EMIs (mortgage) on the loan taken is an agreement between the lender and the borrower inter se. It has no bearing on the ownership of the property. In other words, as far as Sec. 54 is concerned, an investment has indeed been made in property. Whether it's through the mechanism of mortgage or otherwise is immaterial.
This has far reaching impact, especially on NRI investments and taxation. No one is born an NRI. Indian residents become NRIs when they go abroad for employment or business. More often than not, such persons own property in India, either the one they left behind when they went abroad and became NRIs, or one that is inherited. A number of such persons, who have set up a new life abroad definitely don't need a new property just to save on tax. Now, such persons can actually consider buying property abroad and claim tax benefits in India.


Quote:

Originally Posted by pointlesswait (Post 328002)
you can sell...but?
a.) you will have to pay capital gains tax in India? i don't think u can get any exceptions in india... why would the indian govt...not tax you...but let you take the money and invest outside the country..its just simple commonsense..dude

also...

b.) Check with RBI.. there is a limit of how the $ amt that an individual can ship out from india..i was told it is 25K...


42istheanswer 03-19-2009 03:57 PM

very helpful, thank you!
what if i bought property in India with the money i earned(and paid tax on) here in USA? does that make any difference?
also when i sell it, and transfer money back to USA i need to pay tax on capital gains in USA?
what is the proof for capital gains?

sanju 03-19-2009 04:44 PM

Quote:

Originally Posted by 42istheanswer (Post 328012)
very helpful, thank you!
What if i bought property in india with the money i earned(and paid tax on) here in usa? Does that make any difference?
Also when i sell it, and transfer money back to usa i need to pay tax on capital gains in usa?
What is the proof for capital gains?

.


.

shree19772000 03-19-2009 05:02 PM

Red Dots...
 
I donno why someone gave me a red for posting this thread. Not that I care but just wondering what could be the reason.

sumanitha 03-19-2009 05:06 PM

I am not alone
 
Thank you.

I was also thinking about it today and what a coincedence.

Good forum.

Quote:

Originally Posted by shree19772000 (Post 327993)
I was wondering if I can sell my apt in india to find my home purchase here. Will it be taxable here? I am thinking I will get close to 50,000 dollars for it. Will it be exempt under capital gains. Will indian govt. have objection to this transaction or is it exempt there too.

Experts please answers...


cdeneo 03-19-2009 05:19 PM

I had recently contacted a CA in India for this very purpose and was told that there is a restriction that money earned from sale of a property in India needs to be reinvested in another property in India only within the timeline you mention below to avoid paying capital gains tax.

If a resident of India wants to invest in a property abroad using money coming from a sale of property in India - then one has to pay capital gains tax first. Again my question was related to being a resident of India and not NRI who wants to do this - but I doubt the law would be any different for the two in this case.

Just my two cents ... you may want to get proper advice from a CA in India as well. Please share what you find out as I am sure others on this thread including me would be interested in this information!

Quote:

Originally Posted by DSLStart (Post 328003)
For long-term capital gains earned on sale of property, the tax rate is 20%. If the value is above Rs 10 lakh, the tax rate climbs to 22.66%. This applies both to residents as well as non-resident Indians (NRIs). Sec. 54 of the Income Tax Act offers a way out of paying such tax. If the capital gain amount is invested in a residential house within one year before to two years after the sale, then the capital gains earned are fully exempted from tax. In case the investor intends to construct a house, the time limit is extended to within three years of the date of sale. Of course, if only a part of the capital gain is used, the exemption would be proportional and the excess will be chargeable to tax.
Now comes the interesting part, especially for NRIs.
Nowhere does Sec. 54 specify that the new house purchased should be within India.
This means, to save capital gains earned in India, the NRI can even purchase a house in his or her own host country abroad and yet claim exemption. Why just NRIs, now even resident Indians can benefit from this rule. RBI allows an Indian resident up to $1,00,000 per annum to be invested abroad. Such investment could be even in property. So far, this was just a theoretical possibility based on a plain reading of the law. However, in a recent judgment, the Income Tax Tribunal has ruled that the exemption offered by Sec. 54 can indeed be extended to a property purchased in a foreign country.
It's not even necessary that the same amount of capital gains be used to buy the property. The assessee can very well buy the property even on mortgage (housing finance) -- as long as the conditions specified in Sec. 54 are satisfied, the exemption is available. This is because, even for properties bought using mortgage, the borrower instantly becomes the owner of the property. That he is paying his EMIs (mortgage) on the loan taken is an agreement between the lender and the borrower inter se. It has no bearing on the ownership of the property. In other words, as far as Sec. 54 is concerned, an investment has indeed been made in property. Whether it's through the mechanism of mortgage or otherwise is immaterial.
This has far reaching impact, especially on NRI investments and taxation. No one is born an NRI. Indian residents become NRIs when they go abroad for employment or business. More often than not, such persons own property in India, either the one they left behind when they went abroad and became NRIs, or one that is inherited. A number of such persons, who have set up a new life abroad definitely don't need a new property just to save on tax. Now, such persons can actually consider buying property abroad and claim tax benefits in India.


DSLStart 03-19-2009 05:59 PM

Your information is incorrect.
See the link for info from CAClubindia.com (web site for finance professionals in India)
http://www.caclubindia.com/judiciary...udiciary_id=39

Court : Tribunal

Brief : : Section 54 does not prohibit from purchasing property in a foreign country however all other conditions should be satisfied.

Citation : Mrs. Prema P. Shah (2) Sanjiv P. Shah Vs. I.T.O.

Judgment :

Capital Gain - exemption u/s 54
(1) Mrs. Prema P. Shah (2) Sanjiv P. Shah Vs. I.T.O. 11/29/2005
(2006) 282 ITR (AT) 211 (Mumbai)

Case Fact: Whether it is necessary to purchase new residential property in India to utilise the sale proceeds as received on sale of residential property, not acquired in convertible foreign exchange, for claiming exemption u/s 54(1) and whether the new property can be acquired on perpetual lease?

Decision: Held by the Ho"ble Bench that section 54 does not prohibit from purchasing property in a foreign country however all other conditions should be satisfied.The Bench also observed that the assessee should be the absolute owner of the new property in order to claim the exemption.



Quote:

Originally Posted by cdeneo (Post 328046)
I had recently contacted a CA in India for this very purpose and was told that there is a restriction that money earned from sale of a property in India needs to be reinvested in another property in India only within the timeline you mention below to avoid paying capital gains tax.

If a resident of India wants to invest in a property abroad using money coming from a sale of property in India - then one has to pay capital gains tax first. Again my question was related to being a resident of India and not NRI who wants to do this - but I doubt the law would be any different for the two in this case.

Just my two cents ... you may want to get proper advice from a CA in India as well. Please share what you find out as I am sure others on this thread including me would be interested in this information!


shree19772000 03-19-2009 06:39 PM

Indian real estate market expensive than US
 
Quote:

Originally Posted by sumanitha (Post 328042)
Thank you.

I was also thinking about it today and what a coincedence.

Good forum.

I have been thinking about this for a long time. I feel, for next couple of years, buying a house in US will be more viable option than buying a house in India. I feel indian markets are over inflated and will be flat for long time to come. So I was thinking of this option.

cdeneo 03-19-2009 09:46 PM

Thanks DSLStart - your info gives me the necessary ammunition to go back to the CA who gave me the information I had quoted and get clarifications on the same.

Quote:

Originally Posted by DSLStart (Post 328055)
Your information is incorrect.
See the link for info from CAClubindia.com (web site for finance professionals in India)
http://www.caclubindia.com/judiciary...udiciary_id=39

Court : Tribunal

Brief : : Section 54 does not prohibit from purchasing property in a foreign country however all other conditions should be satisfied.

Citation : Mrs. Prema P. Shah (2) Sanjiv P. Shah Vs. I.T.O.

Judgment :

Capital Gain - exemption u/s 54
(1) Mrs. Prema P. Shah (2) Sanjiv P. Shah Vs. I.T.O. 11/29/2005
(2006) 282 ITR (AT) 211 (Mumbai)

Case Fact: Whether it is necessary to purchase new residential property in India to utilise the sale proceeds as received on sale of residential property, not acquired in convertible foreign exchange, for claiming exemption u/s 54(1) and whether the new property can be acquired on perpetual lease?

Decision: Held by the Ho"ble Bench that section 54 does not prohibit from purchasing property in a foreign country however all other conditions should be satisfied.The Bench also observed that the assessee should be the absolute owner of the new property in order to claim the exemption.


go_guy123 03-19-2009 10:34 PM

Quote:

Originally Posted by shree19772000 (Post 327993)
I was wondering if I can sell my apt in india to find my home purchase here. Will it be taxable here? I am thinking I will get close to 50,000 dollars for it. Will it be exempt under capital gains. Will indian govt. have objection to this transaction or is it exempt there too.

Experts please answers...

If your home in India is paid for, give it on rent. If you have zero equity/negative equity in the house in US. It makes no financial sense to do this.
US residential mortgage is a non-recourse loan as per law i.e. it is a out of money call option. Foreclosure is a better option. Even millionares have used this clause to get rid of messy liabilities.
Note:foreclosure is not bankruptcy

mgpv 10-29-2012 09:00 AM

Transfering funds from india to usa to buy property
 
Quote:

Originally Posted by DSLStart (Post 328003)
For long-term capital gains earned on sale of property, the tax rate is 20%. If the value is above Rs 10 lakh, the tax rate climbs to 22.66%. This applies both to residents as well as non-resident Indians (NRIs). Sec. 54 of the Income Tax Act offers a way out of paying such tax. If the capital gain amount is invested in a residential house within one year before to two years after the sale, then the capital gains earned are fully exempted from tax. In case the investor intends to construct a house, the time limit is extended to within three years of the date of sale. Of course, if only a part of the capital gain is used, the exemption would be proportional and the excess will be chargeable to tax.
Now comes the interesting part, especially for NRIs.
Nowhere does Sec. 54 specify that the new house purchased should be within India.
This means, to save capital gains earned in India, the NRI can even purchase a house in his or her own host country abroad and yet claim exemption. Why just NRIs, now even resident Indians can benefit from this rule. RBI allows an Indian resident up to $1,00,000 per annum to be invested abroad. Such investment could be even in property. So far, this was just a theoretical possibility based on a plain reading of the law. However, in a recent judgment, the Income Tax Tribunal has ruled that the exemption offered by Sec. 54 can indeed be extended to a property purchased in a foreign country.
It's not even necessary that the same amount of capital gains be used to buy the property. The assessee can very well buy the property even on mortgage (housing finance) -- as long as the conditions specified in Sec. 54 are satisfied, the exemption is available. This is because, even for properties bought using mortgage, the borrower instantly becomes the owner of the property. That he is paying his EMIs (mortgage) on the loan taken is an agreement between the lender and the borrower inter se. It has no bearing on the ownership of the property. In other words, as far as Sec. 54 is concerned, an investment has indeed been made in property. Whether it's through the mechanism of mortgage or otherwise is immaterial.
This has far reaching impact, especially on NRI investments and taxation. No one is born an NRI. Indian residents become NRIs when they go abroad for employment or business. More often than not, such persons own property in India, either the one they left behind when they went abroad and became NRIs, or one that is inherited. A number of such persons, who have set up a new life abroad definitely don't need a new property just to save on tax. Now, such persons can actually consider buying property abroad and claim tax benefits in India.

Hi Can you please confirm the above is true as of today. That buying house in USA will be seen as equal to buying a house in india to save capital gains tax.

Thank You

Edison99 10-30-2012 02:30 PM

DSLStart - Could please provide supporting documents....

Quote:

Originally Posted by mgpv (Post 3562257)
Hi Can you please confirm the above is true as of today. That buying house in USA will be seen as equal to buying a house in india to save capital gains tax.

Thank You



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