My son who is a US citizen wants to sell property in India. How will tax be charged?

– Name withheld

The residential status of the individual will define the tax liability in India. If the person is a non-resident Indian (NRI) as per the provisions of the Income Tax Act, he is liable to pay income tax on income earned or arising in India. Therefore, if your son owns a residential property in India and wants to sell it, he will pay capital gains tax on the gain from such sale. However, the tax liability will depend on whether the gain is short term or long term capital gain.

If an NRI sells a residential property after 24 months from the date of ownership (24 months from 36 months in Budget 2017), the proceeds from the sale of such property will be treated as long-term capital gain. However, if the residential property is held for 24 months or less, the gain will be a short-term capital gain. The tax implications for NRIs are applicable in the case of inheritance as well.

Long-term capital gains are taxed at over 20%, and short-term gains are taxed at the slab rates applicable to NRIs based on total income, which is taxable in India.

However, when an NRI sells a property, the buyer is liable to deduct TDS at 20%. And if the property is sold before 24 months, TDS of 30% is applicable. NRIs can file ITR and claim refund of additional tax deducted at source.

To answer the second part of the question, if NRIs gift a property to an Indian citizen, where the fair market value of the property is higher 50,000, it is taxable in the hands of the recipient of the gift. However, if the gift is given to relatives (as defined in the Income Tax Act), it is not taxable to the recipient or the giver of the gift. Therefore, if an NRI gifts a residential property to his sibling, it is not taxable.

(Question answered by Archit Gupta, Founder & CEO, Clear. Send your queries to mintmoney@livemint.com)