Buy Property in 2004
I bought a property in 2004 from my NRI money.
Property Cost: Rs. 65 Lakhs
Registration value: Rs. 20 Lakhs
Balance value paid cash and Cheque Rs. 45 Lakhs
The property cost was Rs. 65 Lakhs and that time my broker advise me for reducing the stamp duty, my recorded value was 20 Lakhs and paid by account payee Cheque
Balance paid by cash of Rs. 45 Lakhs. The whole money was legally transferred from UK account to NRI the account in India.
I have transferred Rs. 20 Lakh to an unknown person and as per my seller request and balance of Rs.25 Lakhs paid by cash.
Selling Property in 2012
The same property was sold 2012 and I have received Rs. 1.20 Cr and the recorded value was Rs. 70 Lakhs and balance Rs. 50 Lakhs the buyer transferred to my second bank account.
Now I want to transfer my entire money from Indian bank account to the UK for buying a second property in the UK.
Repatriation of entire Fund to the UK in 2017 (1.5 CR)
Deposit of Rs. 1.20 Cr in 2012
Plus 5 years Interest Rs. 30 Lakhs
Total Rs. 1.50 Cr in 2017
I have informed the bank, I am a UK citizen of Indian origin and holding OCA card. The bank manager confirmed me, he can’t help with a tax clearance certificate.
Kindly advise the right tax law for fund transfer to the UK.
1.Please pay tax as per our calculation attached (Case Study Solution)
Case Study Solution
|FD account deposit (principle amount)||= 1,20,00,000|
|FD account interest up to date||= 30,00,000|
|FD total amount||= 1,50,00,000|
|Total tax payable for capital gain||= 14,61,329 (calculation below)|
|TDS on FD interest @ 30%|
After paying tax on capital gain the Assess can transfer 70,00,000 + interest
Income from Capital gains Computation
|Indexed cost of acquisition||36,80,345.57|
|YEAR : 2012-2013||31-03-2013|
|234 A :||54,704|
|234 B :||82,056|
|234 C :||25,300|
YEAR : 2013-2014
|234 A :||1,36,760|
|234 B :||1,64,112|
|234 C :||25,300|
YEAR : 2014-2015
|234 A :||2,18,816|
|234 B :||2,46,168|
|234 C :||25,300|
|YEAR : 2015-2016||31-03-2016|
|234 A :||3,00,872|
|234 B :||3,28,224|
|234 C :||25,300|
YEAR : 2016-2017
|234 A :||3,62,414|
|234 B :||3,89,766|
|234 C :||25,300|
2.Declare undisclosed income and pay tax and penalty for the consideration not shown in the stamp paper.
3.Tax law of repatriation fund from India.
The reason for this article is that I believe this is an important area of interest to all Indians living in the UK and holding some kind of assets in India. There are a lot of enquires. People get confused and panic about the subject. So I thought it is a good idea to clarify some points in this matter.
As per RBI, NRIs/PIOs are allowed to repatriate an amount up to USD one million per financial year (April-March). This amount includes sale proceeds of assets acquired by way of inheritance or settlement.
Agricultural land is allowed to be transferred by way of sale or gift.
Many Indians living in the UK still believe they need not pay any tax on income or assets held in India. They think they have paid tax on their UK income and it has nothing to do with their Indian assets or income. This is wrong because they are avoiding UK tax and that leads to penalties and later a big tax bill. As per the tax laws of UK, worldwide income is taxable for the UK tax resident.
Tax residency should not be confused with your residential or passport status. Even if you are an Indian passport holder and/or a student in the UK, you are still a tax resident in the UK.
While you are filing a tax Return or declaring income in the UK, it is your responsibility as a UK taxpayer to disclose your worldwide income. If you are domiciled in the UK, you have to pay tax on your worldwide income, whether or not it has been remitted, but if you are non- domiciled in the UK, you can opt for a remittance basis. In that case, you need to make a fixed tax payment on the basis of the number of years of residency in the UK.
From the above, we can see that UK tax rules affect all Indians living in the UK, who have some kind of assets or income in India. It will affect even property inherited from parents or a share of family property.
Considering the laws of the two countries, it is important that tax planning is done in the right way.
If you buy a house, property or land in India and sell it subsequently, you need to pay tax in India as well as tax in the UK. Even if this property is inherited from your parents, you still need to pay tax in both countries. However, you could claim ‘foreign tax credit relief’ whilst computing UK tax liability.
Many residents in the UK who still think they are not required to pay tax in either place are being wrongly advised, and finally, end up with more tax liability.
This article is especially targeted at Indians who have settled in the UK, US or other countries and have assets in India. The assets may be owned out of investment from overseas income or inherited from their parents. The different scenarios are analyzed below.
1. NRI’s living in UK/abroad who are disposing of assets acquired in India out of NRI savings
Tax payable in India
They are liable to pay income tax or short-term or long-term capital gains tax.
NRIs cannot purchase agricultural land in India. However, if the land they bought is used for agriculture, the sale of the same will be exempt from capital gains tax in India if the same is located in a rural area. In the case of house properties and other assets, they are subject to income tax as short- or long-term capital gains tax.
Tax is levied on long-term capital gains at flat 20% and on short-term capital gains at applicable slab rates.
NRIs are exempted from the tax upon making of specified investments within a specified time limit. Various investment options are available for assesses to reduce the tax burden.
The buyer needs to deduct the withholding tax, and he can transfer up to 1 million US dollars to the UK. For any amount more than that, he is required to obtain prior RBI permission. Otherwise, he needs to open an NRO account and repatriate only the cost of investment. The remaining amount can be repatriated after paying the appropriate tax in India. Any transaction in property over 3 million Indian Rupees needs to be informed by the registrar to the local income authority, and subsequently, it can be investigated.
The rate of Tax:
a) On Long-Term Capital Gain: 20%
b) On Short Term Capital Gain:
15% in the case of transfer of equity shares or units in equity oriented funds and if the transaction was subject to securities transaction tax
Slab rate in other cases of short-term capital gain.
Tax payable in the UK
Either income tax or capital gain tax has to be paid depending on the case, but they are eligible to apply for double taxation exemption and claim the tax credit.
Non-domiciled UK residents can opt for remittance basis. Domiciled UK residents, even if they are Indians, need to pay tax on worldwide income, whether it is income tax or capital gains tax. They are not allowed to pay tax on the remittance basis but need to pay tax on an accrual basis of income.
2. NRIs who wish to sell assets acquired by inheritance from parents in India or their family share of property and assets in India
This is a very typical situation of Indians living in the UK whose parents are taxable residents living in India.
Although parents have passed on their assets to their children, if they are UK residents, capital gains tax is applicable on sale of this property in India. We can analyze the tax treatment of both the countries, as follows.
Tax payable in India
Assets received from parents are not taxable at the time of receiving them. Sale proceeds from such land, property or any other assets in India are subject to capital gains tax at the time of sale.
If the property is agricultural land, it is exempt from capital gains tax and income tax if the same is situated in a rural area, but if the property is situated in a non-rural area, it is not exempt from income tax or capital gains tax.
Again, NRIs can avoid tax by making specified investments to the tune of capital gains or net sale proceeds as per available options, but they still need to pay UK tax and foreign tax credit can be claimed.
Indian tax can be withheld by the buyer and paid to the credit of the central government and the balance amount remitted to the UK up to an annual limit of one million US Dollars. NRIs need to open an NRO account and transfer all the sale proceeds to that account. After paying the local tax the Tax Clearance Certificate has to be obtained and submitted.
For any amount higher than one million US dollars, prior RBI permission is required. The rate of Tax:
a) On Long-Term Capital Gain: 20%
b) On Short-Term Capital Gain:
15% in the case of transfer of equity shares or units in equity oriented funds and if the transaction is subject to securities transaction tax
Slab rate in other cases of short-term capital gain
Tax payable in the UK
The taxpayer in the UK needs to pay income tax or capital gains tax depending on the nature of the Indian income, but they can claim double taxation relief on the tax they have already paid for the same income in India.
Non-domiciled residents can opt for a remittance basis, but they need to pay fixed fees up to
£50,000, depending on the individual case. In this case, they need to state separately in their tax
Return that their status is non-domiciled.
Domiciled persons in the UK need to pay tax on an accrual basis of income. This means they need to pay tax, whether remitted to the UK or not remitted to the UK
3. Other Income or profit in India
Tax payable in India
Gift received from certain persons and under certain situations are exempted from tax. Any other gift received without consideration or for inadequate consideration of an amount more than Rs 50,000 is taxable on the person receiving the gift. The tax will be charged at applicable slab rates.
In the case of income from residential property such as rent, the tax will be applicable on NRIs. While calculating taxable rental income, NRIs can claim municipal tax, 30% of rent received, interest and principal amount on housing loan. Balance amount will be taxed at applicable slab rates.
NRIs have tax exemption for the following income:
Interest on notified securities or bonds and premium on redemption of such securities
Interest on Non-Resident External rupee account (NRE account)/Foreign Currency Non- Resident (FCNR) Accounts/Non-Resident Non-Repatriable (‘NRNR’) Deposits and other securities, bonds, savings certificates notified
Interest on notified saving certificates subscribed in foreign currency by an Indian citizen/Person of Indian Origin
Income from units of Unit Trust of India (‘UTI’) acquired in foreign exchange by Indian citizen/Person of Indian Origin.
Interest from notified bonds (7-year dollar bonds issued by the State Bank of India) purchased in foreign exchange (Exemption continues even after a person becomes resident.
Interest paid by scheduled banks on RBI approved foreign currency deposits
Tax payable in the UK
NRIs who are UK Residents need to pay tax in the UK. They can then claim double taxation tax relief. Cash gifts from non-resident parents are not taxable.
NRI/PIO can mortgage a residential/commercial property to:
(a) An authorized dealer/the housing finance institution in India without the approval of
Reserve Bank of India
(b) A bank abroad with prior approval of the Reserve Bank of India
(c) A foreign national of non-Indian origin only with prior approval of the Reserve Bank of India
A foreign company which has established a branch office or other place of business in accordance with FERA/FEMA regulations has general permission to mortgage property with an authorized dealer in India.
NRI/PIO can sell and/or gift agricultural land/plantation property/farm house to an Indian resident who is also an Indian citizen. However, an NRI cannot purchase agricultural land in India.
In case the agricultural land is located in a rural area, the sale of the same is exempt from capital gains tax. NRIs can avoid tax through specified investments.
A person paying income to NRIs by way of rent or sale proceeds of property sold has to deduct tax at source as follows:
In the case of short-term capital gain/rental Income/interest: 30% + applicable cess
In the case of short-term capital gain from sale of equity shares/units of equity oriented funds which are subject to security transaction tax: 15% + applicable cess
In the case of long-term capital gain: 20% + applicable cess
An NRI can submit Form 10F, to enable deduction of TDS on interest on bank deposit at a lower rate.
Situations where NRIs have to file Income Tax Return:
If Indian taxable income exceeds Rs 2,50,000
For claiming refund
For claiming DTAA benefits
CBDT has the power to reopen assessment and determine income and income tax payable up to
16 previous financial years. So willful neglect would attract tax with huge penalty and interest. In India, to avoid such cases assesses are required to declare their income and file a proper Return of income in the resident country.
Residents need to follow money laundering regulations. Banks will verify the source of income and will report to HMRC. Tax and penalty are charged to non-disclosed tax payee.
Remittance of Sale Proceeds Abroad
To remit sale proceeds abroad, NRIs have to submit Form 15CA along with Form 15CB, certified by a Chartered Accountant, to the bank through which remittance is to be made.
Steps for remitting money from India
1. After sale of property in India, approach local bank for remitting the fund
2. Electronically upload remittance details in Form 15CA, submit a signed copy of the same along with Tax Clearance Certificate from Chartered Accountant to the bank.
3. Bank will remit the amount after communicating with RBI and income tax authorities.
4. One million US Dollars can be transferred without RBI’s permission.
Forms 15CA and 15CB are not required to be submitted for transactions covered in notification no. 67/2013 which are as follows:
|Purpose code as per RBI||
Nature of payment
|1||S0001||Indian investment abroad – in equity capital (shares)|
|2||S0002||Indian investment abroad – in debt securities|
|4||S0004||Indian investment abroad – in subsidiaries and associates|
|5||S0005||Indian investment abroad – in real estate|
|6||S0011||Loans extended to Non-Residents|
|Payment – for operating expenses of Indian shipping companies operating abroad|
|8||S0208||Operating expenses of Indian airline companies operating abroad|
|9||S0212||Booking of passages abroad airlines|
|10||S0301||Remittance towards business travel|
|11||S0302||Travel under Basic Travel Quota (BTQ)|
|12||S0303||Travel for pilgrimage|
|13||S0304||Travel for medical treatment|
Who needs to file tax Return in the UK?
1. Self-employed person
2. Company directors
3. Ministers of religion
4. Those who earn £11,500 or more income from savings and investments
5. Those who earn £2,500 or more untaxed saving and investments
6. Those who earn £10,000 or more income from property before deducting allowable expenses
7. Those who earn £2,500 or more income from property after deducting allowable expenses
8. Persons with annual income more than £100,000
9. Employed persons who want claim expenses or professional subscriptions of £2,500 or more
10. Those earning capital gain
11. Persons living or working abroad or not domiciled in the UK
GST for NRI Real Estate
Following are exempted from GST:
1. Sale of land
2. Sale of building after obtaining completion certificate or after its first occupation
3. Construction of residential building for own use
4. Pure labor contracts for single residential units
5. Renting of residential dwelling
In other cases, GST will be applicable as follows:
|Construction of a complex, building, civil structure or a
part, including a complex or building intended for sale to a buyer, wholly or partly and works contract for the same.
Please note that while considering sale value of a building, value of land has to be deducted while calculating GST since the sale of land is exempt. Generally, 1/3rd of the value is considered as land value and 2/3rd is taken for the calculation.
|Rental or leasing services involving own or leased
|Real estate services on a fee or commission basis or on
|Works contract for construction, erection, commissioning,
or installation of original works pertaining to
1. a single residential unit other than as a part of a residential complex
2. low-cost houses up to a carpet area of 60 square meters per house in a housing project approved by a competent authority of any housing scheme under govt. of India
Stamp duty will continue to be applicable, irrespective of whether the property is under construction or constructed.
Income tax on the sale of the property will also be applicable as usual.
Supply of goods or services
GST is applicable to the supply of goods or services or both (as principal or agent or in any other capacity) by a person who has no fixed place of business or residence in India.
Such a person is called “non-resident taxable person” and has to register for GST.
Application to be submitted at least five days prior to commencing business in India. Documents to be submitted are
In the case of NRI, valid passport (PAN not required)
In the case of business entity incorporated or established outside India, tax identification number or unique number on the basis of which the entity is identified by the Government of that country or PAN, if available
The application has to be signed by an authorized signatory who shall be a person resident in India having a valid PAN.
The applicant will be given a temporary reference number for making an advance deposit of tax in an amount equivalent to the estimated tax liability for the period for which the registration is sought.Taxable supplies can be made only after issuance of the certificate of registration which will be valid for the period specified in the application for registration or ninety days from the effective date of registration, whichever is earlier.
Request for extension of validity, if required, has to be submitted before the end of the validity of registration granted. An additional amount of tax equivalent to the estimated tax liability for the period for which the extension is sought has to be deposited. The extension can be provided for a further period not exceeding ninety days.
Input Tax Credit
Input tax credit is available only on goods imported by a non-resident taxable person, not for those received.
Taxes paid by a non-resident taxable person shall be available as credit to the respective recipients.
Filing of Returns
GST Returns have to be filed within twenty days after the end of a calendar month or within seven days after the last day of the validity period of registration, whichever is earlier.
Returns to include details of outward supplies and inward supplies. Tax, interest, penalty, and fees, as applicable, have to be paid. Refund
A refund request can be submitted for remaining amount of the deposited advance tax after submission of all Returns required to be submitted during the registration period.
Exemption of GST
Trade within a state: Exemption for Turnover up to threshold limit of Rs 20 lakhs (Limit is Rs 10 lakhs for the North Eastern States)
Export: No tax. The credit of input tax credit will be available and same will be available for the refund to the exporters. The exporter will have an option to either pay tax on the output and claim the refund of IGST or export under Letter of Undertaking without payment of IGST and claim the refund of Input Tax Credit (ITC).
Supply for charitable activities: Exempted
No GST Exemption
Tax payment on reverse charge basis
Import of goods
Self-employment resulting in exchange of foreign currency
Payment for outsourcing work assigned to Indian residents/entities by foreign residents
Tie up between non-residents and Indian e-commerce
Supply of online information and database access or retrieval services from a place outside India
Casual taxable persons
Non-resident taxable persons
Persons who are required to deduct tax
Persons who supply goods and/or services on behalf of other registered taxable persons whether as an agent or otherwise
Input service distributor (whether or not separately registered under the Act)
Persons who are required to collect tax
Every electronic commerce operator
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Please contact us for any support and guidance for taxation in India & UK. Call: +91989 521 2229