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535.    Buy house in Australia & Save capital gains tax in India . . .

Questions: Hi, Me and my father had a joint property in india that we sold this year. i am now a permanent resident of australia since 2.5 years. I wish to purchase a property here in australia from the money we got out of the sale of the property in india. I would like to know what needs to be done to bring the money legally and does capital gains tax need to be paid in both countries? Your help is much appreciated. Regards, Sidharth Answer:  Regarding your questions: 1. Transferring money that is received from the sale of property in India can easily be done. The entire step by step process is available in an article titled ‘Repatriate money from sale of property - Transfer funds abroad’ on this website Nri Information. You can see the article HERE   2. Regards to your second question on whether capital gains has to be paid in both countries, Australia and India. i. Capital gains is payable in India because the property is located in India.  ii. Capital gains is also payable in Australia, because all Australian residents must declare and pay any capital gains taxes on overseas property they hold. iii. You won’t have to pay the same tax twice! As per Double Tax Avoidance Agreement between Australia & India, you would get credit for the tax you pay in India when you file your Australian tax return. So you may not have to pay, depending on current tax rates.

Saving Capital Gains Tax

There is a possibility of saving on capital gains tax in India. Section 54EC of the Income tax Act, allows an exemption from long term capital gains tax to those who sell a property in India, that they have owned for at least three years, if: 1. They invest capital gain amount in three year locked-in NHAI or REC bonds. If only a partial amount of the capital gain is invested in bonds, then the exemption applies only to the amount invested. The maximum amount allowed per financial year is Rupees 50 lakh. 2. To take advantage of such an investment in bonds, the investment must be done within six months of the sale of the property. 3. While capital gains are fully exempt after the three year lock in period, the interest earned on the deposit is taxable. Under Section 54F of the income tax Act, your capital gains become exempt if: The property sold was held for at least three years AND The seller purchases a new house within two years of the sale. (three years if they construct a house) Does not own more than one residential property at the time of the sale. The house purchased or constructed, to take advantage of the capital gains exemption, should not be sold off before three years. No other house should be purchased within two years or constructed within three years. Since you will use the money in Australia to purchase another house, you cannot invest in bonds to save capital gains tax. However, as you will be purchasing a house in Australia and if you do not own another house in Australia, you may want to check into the possibility of claiming capital gains exemption under Section 54. Section 54 does NOT specify the location of where the other house must be purchased or built to claim the capital gains exemption, it does not state specifically that the house must be purchased only in India! or built in India. There have I believe been a few cases where NRIs have claimed such an exemption.  While a few NRIs have successfully used Section 54, such as [Mrs. Prema P. Shah, Sanjiv P. Shah v ITO (2006) 282 ITR (AT) 211 (Mumbai)] there is also a case where such an argument was rejected, see: [Leena J Shah v Asstt. CIT (2006) 6 SOT 721 (Ahd)]. You may also be interested to know that Australia exempts principle residences from tax. Perhaps you may want to talk to a tax advisor in Australia to check if you can get any benefit, if this was your principle residence. While there is a requirement in Australia that a person must have lived in the principle residence, they do allow temporary absence periods of almost 6 years, depending on circumstances. Check with an accountant. To calculate capital gains on property sold in India, check http://www.nriinformation.com/nri_guide/calculate_capital_gain.htm
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Disclaimer: Information provided is for general knowledge only and should not be deemed to be professional advice. For professional advice kindly consult a professional accountant, immigration advisor or the Indian consulate. Rules and regulations do change from time to time. Please note that in case of any variation between what has been stated on this website and the relevant Act, Rules, Regulations, Policy Statements etc. the latter shall prevail. © Copyright 2006 Nriinformation.com
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535.    Buy house in Australia & Save

capital gains tax in India . . .

Question: Hi, Me and my father had a joint property in india that we sold this year. i am now a permanent resident of australia since 2.5 years. I wish to purchase a property here in australia from the money we got out of the sale of the property in india. I would like to know what needs to be done to bring the money legally and does capital gains tax need to be paid in both countries? Your help is much appreciated. Regards, Sidharth Answer:  Regarding your questions: 1. Transferring money that is received from the sale of property in India can easily be done. The entire step by step process is available in an article titled ‘Repatriate money from sale of property - Transfer funds abroad’ on this website Nri Information. You can see the article HERE   2. Regards to your second question on whether capital gains has to be paid in both countries, Australia and India. i. Capital gains is payable in India because the property is located in India.  ii. Capital gains is also payable in Australia, because all Australian residents must declare and pay any capital gains taxes on overseas property they hold. iii. You won’t have to pay the same tax twice! As per Double Tax Avoidance Agreement between Australia & India, you would get credit for the tax you pay in India when you file your Australian tax return. So you may not have to pay, depending on current tax rates.

Saving Capital Gains Tax

There is a possibility of saving on capital gains tax in India. Section 54EC of the Income tax Act, allows an exemption from long term capital gains tax to those who sell a property in India, that they have owned for at least three years, if: 1. They invest capital gain amount in three year locked-in NHAI or REC bonds. If only a partial amount of the capital gain is invested in bonds, then the exemption applies only to the amount invested. The maximum amount allowed per financial year is Rupees 50 lakh. 2. To take advantage of such an investment in bonds, the investment must be done within six months of the sale of the property. 3. While capital gains are fully exempt after the three year lock in period, the interest earned on the deposit is taxable. Under Section 54F of the income tax Act, your capital gains become exempt if: The property sold was held for at least three years AND The seller purchases a new house within two years of the sale. (three years if they construct a house) Does not own more than one residential property at the time of the sale. The house purchased or constructed, to take advantage of the capital gains exemption, should not be sold off before three years. No other house should be purchased within two years or constructed within three years. Since you will use the money in Australia to purchase another house, you cannot invest in bonds to save capital gains tax. However, as you will be purchasing a house in Australia and if you do not own another house in Australia, you may want to check into the possibility of claiming capital gains exemption under Section 54. Section 54 does NOT specify the location of where the other house must be purchased or built to claim the capital gains exemption, it does not state specifically that the house must be purchased only in India! or built in India. There have I believe been a few cases where NRIs have claimed such an exemption.  While a few NRIs have successfully used Section 54, such as [Mrs. Prema P. Shah, Sanjiv P. Shah v ITO (2006) 282 ITR (AT) 211 (Mumbai)] there is also a case where such an argument was rejected, see: [Leena J Shah v Asstt. CIT (2006) 6 SOT 721 (Ahd)]. You may also be interested to know that Australia exempts principle residences from tax. Perhaps you may want to talk to a tax advisor in Australia to check if you can get any benefit, if this was your principle residence. While there is a requirement in Australia that a person must have lived in the principle residence, they do allow temporary absence periods of almost 6 years, depending on circumstances. Check with an accountant. To calculate capital gains on property sold in India, check http://www.nriinformation.com/nri_guide/calculat e_capital_gain.htm
N
RI Information
 Informing  educating and connecting Indians across the globe
NriInformation Questions &Answers 
Read Disclaimer at bottom of page
Disclaimer: Information provided is for general knowledge only and should not be deemed to be professional advice. For professional advice kindly consult a professional accountant, immigration advisor or the Indian consulate. Rules and regulations do change from time to time. Please note that in case of any variation between what has been stated on this website and the relevant Act, Rules, Regulations, Policy Statements etc. the latter shall prevail. © Copyright 2006 Nriinformation.com
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