How is property sale by a PIO taxed?
I have been a domiciled tax resident of the UK for many years. Usually, I spend 4-5 months of winter every year in India. Because of the 120day rule, I no longer qualify as a non-resident in India. I have identified a buyer to sell my property in Bengaluru when I travel to the country this year. The prospective buyer informs me that she will deduct TDS at a 20% rate. Is this proper? What would be the taxation on a such property sale for me?
—Name withheld on request
Since you have highlighted the 120-day visit rule, I assume that you are a person of Indian origin for that purpose of ascertaining residency under Indian tax laws (i.e. you or one of your parents or grandparents was born in an undivided India). I also assume that you earn more than ₹15 lakh income in India. You are correct that a person of
Indian origin (PIO) having more than ₹15 lakh income in India becomes a ‘resident’ if (a) their visit to India in a particular financial year amount to more than or equal to 120 days and (b) they would have stayed in India cumulatively for more than or equal to 365 days for the previous four financial years. However, if the individual’s period of stay remains below 182 days in the respective financial year, then this person qualifies as a ‘not ordinarily resident’.
In your case, since you spend 4-5 months every year in India, you will qualify as a ‘resident but not ordinarily resident’ (RNOR). For RNOR tax status, though incomes accruing outside India (barring some) are not taxable in India, incomes accruing in India remain taxable in India. Therefore, gains on the sale of Indian property will be taxable in India. ‘Resident’ includes RNOR, thus the buyer needs to deduct TDS at 1% (no additional surcharge or cess) while paying you the gross sale consideration and not at 20%. This is on account of the reason that you are still a ‘resident’ although living outside India. If the property qualifies as a longterm asset (holding of more than 2 years), then gains (after indexation) would be taxed at 20% (plus applicable surcharge and cess). Otherwise, capital gains would be taxed as normal income at the applicable slab rates.
However, since you are a tax resident of UK (and also domiciled in UK), you may explore opting for the provisions of the double taxation avoidance agreement if they are more favourable in your case than the Indian tax provisions.
Harshal Bhuta is a partner at chartered accountancy firm P.R. Bhuta & Co.