The Telegraph
Saturday , July 12 , 2014
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Overseas property buy loses appeal

Calcutta, July 11: Indians buying property abroad using the proceeds from the sale of property in India will not be exempted from capital gains tax, impacting plans to settle overseas.

Budget fine print revealed that exemption from capital gains tax, which now stands at 20 per cent, would be available only if the property was located in India.

In the absence of any clarification so far, people used to claim exemption even if the property was bought abroad.

According to the provisions of income tax act, capital gains arising out of the sale, or transfer, of long-term capital asset (building or apartment) will be taxed at 20 per cent.

This can be avoided if the individual invests the capital gain in a new ready-to-move property within two years or an under-construction property within three years. The relief is provided under Section 54 of the act. If the new property is bought even a year before the sale of the old property, the exemption is allowed.

Capital gain is calculated after taking into account the price at which the old property was bought and arriving at the present value with the help of indexation.

If the sale value is higher than the old property price with indexation benefit added up, the difference is considered as capital gain.

As it was not specified whether the capital gain should only be invested in an Indian property, people could purchase property abroad and still avoid paying tax on it.

“The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of Section 54 to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India,” the budget documents said.

Narayan Jain, former general-secretary of the All India Federation of Tax Practitioners, said it might hit plans of people planning to settle abroad. “Many a times we see old people selling their properties in India and moving abroad. They used to get the tax benefit. Now it will not be available any more,” he said.

This will also impact the plans of high net worth individuals who were taking the opportunity of a slump in property prices in Dubai and the US to buy property there. They used to enjoy capital gain benefits by selling the property in India.

However, real estate circle expressed satisfaction with the amendment. Abhijit Das, head of global consultancy, Cushman & Wakefield, said this could act as an additional incentive for people to buy property in India.

Apart from section 54, section 54F has been amended likewise. Under the section, exemption from capital gain arising out of the sale of any long-term asset (gold) will be applicable to Indian property only.