Tax-free India transactions may cost you abroad

I am a real estate consultant. I have a NRI client who owns a property here and wishes to sell and transfer the money to USA. In case of NRI’s, I suppose TDS deducted is 22.3%. Is the seller supposed to pay another 15% tax, over and above the TDS deducted, in the US if he wishes to transfer the sale proceeds there. Also, is there any other way out to get an exemption from paying tax? Alternately, I have suggested him to invest in another property here to save tax.
—Sejal N Shah

You have raised a very interesting query. The tax payable in India on the long-term capital gains (LTCG) in respect of the property will be 20.60%, or 22.66%, or 23.69%. The tax will be deducted at source by the buyer and if that is lower than the tax payable as above, your client will have to pay the difference himself. He can obtain a certificate from the assessing officer for lower deduction of tax if he is able to prove his exemption claim based on fresh investment made by him in another property in India. If he is able to get such a certificate, the buyer will not deduct the tax at source. But, there could be an issue with that as the assessing officer may insist on your client first making the investment in the property, and, your client may have to first invest in the property and only then be able to get the sale proceeds from the buyer.

The tax impact in the US is something for which your client should obtain advice from a tax consultant in the US but the following is a prime facie reply. The LTCG on sale of the property is likely to be taxable in the US. If we assume the US capital gains tax rate is higher than the rate in India and that your client is able to get credit for the tax paid in respect of this transaction in India then, in the US, he will only have to pay the tax that is over and above the tax paid in India. He will have to pay no tax in the US on these gains if the tax rate there is lower than that in India.

On the other hand, if you have claimed exemption in India because of investment in another property, the capital gains tax would still be payable in the US at the applicable rate as no credit would be available in respect of tax paid in India. The fact that the transaction was exempt in

India is thus likely to have an adverse impact in the US if any tax is payable there. It may make no sense thus to invest in a property in India solely to save capital gains tax as you are likely to end up paying the tax in US anyways. Please take professional advice especially in the US before proceeding any further in the matter.

I could only claim nine months of house-rent benefits during FY17 and planning to claim the rest while filling income-tax (I-T) return online. However, the new requirement of 12BB form will only display the nine months of rent that I backed up with documentary evidence. Do I need to submit any document while filling the return. How will the I-T department know my claim is genuine?
—Priyam Routray

You should go ahead and claim the correct amount of deduction in your I-T return. Under the current I-T rules, no documents are required to be submitted along with the return of income. On your part, you must keep all the documents on your file to be produced if demanded by the tax department. The vast majority of I-T returns are accepted as they are filed by the tax payer and the tax payers don’t have to visit the tax department to submit proof for any income, or deductions claimed by them. In fact from the current year, the tax department has started the “e-proceedings” system of submission of documents whereby the tax department will seek details in an electronic format and you will be able to submit them in an electronic manner. Hopefully, that will make the job of submission of such documentary proof, even where required, much easier.

KNOWLEDGE HELPS

• If you have claimed exemption in India due to investment in another property, capital gains tax would still be payable in the US
   
• Most I-T returns are accepted. Taxpayers don’t have to visit the department to submit proof for any income, or deductions