Selling RE in India - Tax differences between USC and INC

nagappan01 · Post by **nagappan01** » Tue Feb 13, 2007 1:50 am

Hi:

I tried posting this under the finance forum but encountered some technical difficulties. One of my friends told me that if you are an Indian Citizen and sell a land after holding it for 3 years, one doesn't have to pay any tax but if you are US Citizen, you need to pay capital gain taxes even after holding the land for 3 years. I have not heard this before and I just wanted to find out from the users on this forum on whether any of you have heard this before. Thanks.

Oasis · Post by **Oasis** » Tue Feb 13, 2007 3:46 am

#1:

The short answer to your query is "yes". Read this link to know more:
http://groups.msn.com/R2INRIFinanceAndInvestments/banking.msnw?action=get_message&mview=0&ID_Message=46091&LastModified=4675554095975387158&all_topics=1

Oasis

DosaiLvr · Post by **DosaiLvr** » Thu Feb 22, 2007 9:51 am

Folks,

Would a GC earning LTCG from a RE transaction in India be liable for US taxes?

Assume the GC holder sells a prop. in India and earns LTCG.

Scenario 1 - GC avails exemption from Indian LTCG tax as allowed by Indian tax laws.

The GC holder is required to declare the CG (and eventually pay taxes) while filing his returns in the US.

Scenario 2 - He/she does not avail LTCG tax exemption in India and pays the taxes.

The GC holder should declare the CG, but may avail relief under the DTAA as far as US taxation on the LTCG goes.

Eitherways, it appears the GC is liable for LTCG tax - in India or the US... :(

Is my understanding correct?

--TIA

jt101 · Post by **jt101** » Tue Mar 13, 2007 10:48 pm

hi,

I tried to find answer to my question, but I am not able to come to any conclusion. So I am posting it here...

I am in the process of finalizing a deal to buy land (near Belgaum, Karnataka) with the idea of exploring it for commercial activities 3-4 years down the line. This is subject to my R2I and if the surrounding area develops...

I am a US citizen. It is a non-agriculture land, converted recently.

If for some reasons the area doesn't develop well or if I don't R2I, I like to sell the property. What are the implications, me being USC?

Can I sell it anytime? What about capital gains tax short term/long term?

or Is it better to give PoA to somebody and let them handle it, assuming everything goes well?

Any answers please? Thanks...

Bobus · Post by **Bobus** » Wed Mar 14, 2007 2:30 am

One of my friends told me that if you are an Indian Citizen and sell a land after holding it for 3 years, one doesn't have to pay any tax, ...

If you sell India land after holding for 3 years, any cap gain is classified as long term cap gain (as opposed to short term cap gain). Long term cap gain from real estate is subject to India tax, after allowing for inflation indexation, at a flat 20% rate (plus applicable surcharge and education cess), as opposed to short term cap gain from real estate which is also subject to India tax, but as ordinary income.

but if you are US Citizen, you need to pay capital gain taxes even after holding the land for 3 years.

India tax law is based for the most part on residential status, and source of income, not on citizenship. So what you heard is wrong. Citizenship does not matter when it comes to tax on India real estate cap gain.

Bobus · Post by **Bobus** » Wed Mar 14, 2007 2:35 am

#3 and # 4:

USC or GC holder is subject to US tax on global income, even if USC or GC holder lives in Mars. So any income from India real estate - whether cap gain or rental income - has to be reported to IRS and tax paid.

If the real estate is located in India, then any income from it would be subject to India tax too, regardless of citizenship or residential status - so even a USC living in Antartica is subject to India tax on India real estate income.

If there is a tax liability to both India and to US, then on India source income, credit for taxes paid to India can be claimed from IRS when filing US return.

DosaiLvr · Post by **DosaiLvr** » Wed Mar 14, 2007 5:07 am

Bobus;12349#3 and # 4:

USC or GC holder is subject to US tax on global income.[/quote]

Bobus, thanks for the reply.

Subsequent to posting my #3, I now understand that not only USC/GC but also H1Bs and/or anyone else who files US returns as a resident would be liable for India RE related cap gains.

Many GCs and H1Bs may be blissfully unaware of this obligation to uncle sam.

jt101 · Post by **jt101** » Wed Mar 14, 2007 11:15 am

Bobus, Thanks for your time and effort.

What I understand is : Irrespective of one's citizenship, one must pay capital gains tax to the Indian government, as the land is in India. (If short term, i.e. less than 3 years, then like a regular income;; if long term, 20% subject to possible duductions like inflation etc...)

In case of a USC, the 20% tax paid to the Indian govt, can be taken claimed as deduction/credit while filing US tax returns, only if I pay gapital gains tax in US also???

Thanks everyone again...

hacking · Post by **hacking** » Sun Jun 19, 2011 9:58 pm

I tried to find answer to my question, but I am not able to come to any conclusion. So I am posting it here...

I am in the process of finalizing a deal to buy land (near Belgaum, Karnataka) with the idea of exploring it for commercial activities 3-4 years down the line. This is subject to my R2I and if the surrounding area develops...

I am a US citizen. It is a non-agriculture land, converted recently.

If for some reasons the area doesn't develop well or if I don't R2I, I like to sell the property. What are the implications, me being USC?

Can I sell it anytime? What about capital gains tax short term/long term?

or Is it better to give PoA to somebody and let them handle it, assuming everything goes well?

Any answers please? Thanks...

VS007 · Post by **VS007** » Sun Jun 19, 2011 11:43 pm

You can sell anytime, but tax implications maybe different.
If it is less than one year, then it falls under short term capital gains tax, more than a year you have to pay long term capital gains tax which is around 15%.
http://www.irs.gov/newsroom/article/0,,id=106799,00.html

You can sell and buy another similar property to avoid taxes, however there are some restrictions on the definition of "Like-kind" and the time limit (45 days). Pls go through in detail: http://www.irs.gov/newsroom/article/0,,id=179801,00.html

--
You can give POA to purchase and sell the property, however when you sell, the cheque would be given in your name, not the POA holder ( maybe I am wrong). If the cheque can be given in name of POA holder, then you are free, and he can gift or pass on as inheritance.
The last paragraph is purely my conjecture, pls let knowledgeable people opine or research on this and educate us.