Navigating cross-border inheritance and taxation can feel overwhelming, especially when your children reside outside India. If you are planning to transfer property to non-resident heirs, it is essential to understand the tax implications. Today’s question focuses on NRIs and the rules that apply when they sell their property in India.
Moneycontrol’s Ask Wallet-wise initiative brings you expert guidance on personal finance and money-related queries. If you need advice, email your questions to askwalletwise@nw18.com, and we’ll work to get a top financial expert to address your concerns.
I have two children. My daughter is settled in Mumbai and my son is a US citizen. I am planning to prepare a will bequeathing all my assets, including one residential house, to both children equally. I request you to kindly guide me regarding the tax liability of my son. When the residential house property is sold in India, will my son have to pay any tax liability? Are there any benefits available to my son under the India–US Double Tax Avoidance Agreement (DTAA)? If my son has to pay taxes in India, can my daughter pay the capital gains tax on the entire long-term capital gain and recover 50% of the tax from her brother while remitting her share?
Expert Advice: As far as your question on the availability of benefits under the DTAA is concerned, I would like to draw your attention to Article 13 of the India–US DTAA, which entitles each country to levy tax on capital gains as per their domestic laws. Therefore, your son will have to pay tax on long-term capital gains whenever the residential house property inherited by him in India is sold.
Under Indian tax laws, the buyer is obligated to deduct tax under Section 195 at the applicable rate at the time of making payment to a non-resident. Whenever the property is sold, the buyer will deduct tax at the time of remitting your son’s share. The TDS rate for a non-resident seller and a resident seller is different. The tax rate applicable to a non-resident is 12.50% of capital gain without any basic threshold, whereas the rate of tax to be deducted when buying a building from a resident is 1% of the sale consideration if the value of the property exceeds Rs50 lakhs.
Your daughter alone cannot discharge the tax liability on the sale of property jointly owned by both children. So the alternative suggested by you will not work, as the liability for tax has to be discharged by the respective owners of the asset.
If you bequeath the house to your daughter only, then she alone will be liable for tax on long-term capital gains. Post the sale, your daughter can remit her brother’s share after deducting the tax paid by her. The remittance can be made as a gift to her brother under the Liberalized Remittance Scheme (LRS). Since gifts received from siblings are not treated as income in India irrespective of the amount, your son will not have any tax liability on this count in India. However, the tax implications for this gift transaction in the US will have to be evaluated.
If this arrangement does not work, then there is no way out for your son other than to pay taxes in India and file his ITR after obtaining his PAN, whenever the property is sold.
Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
