Property held for more than 24 months is classified as long-term capital asset

Property held for more than 24 months is classified as long-term capital asset

The income arising from transfer or use of inherited property in India will be taxable in India (Photo: iStock)

We are American citizens. My mother (56) recently inherited 3 acres of farm land and a bungalow with rental in Rajasthan. She wants to transfer everything to me and sell everything. What will be the tax implication of inheriting and selling the properties?

—Samriddhi Joshi

Under the income-tax law, the value of any asset received under a Will or by way of inheritance is not taxable in India. However, the income arising from transfer or use of inherited property in India will be taxable in India.

Sale of immovable property (farm land and bungalow) will be taxable in India in the year of sale of property. Any immovable property held for a period of more than 24 months is classified as long-term capital asset. For inherited property, the holding period would be calculated from the date of acquisition by the original owner. In case of a long-term capital asset, taxable capital gain will be net sale proceeds less indexed cost of acquisition (i.e. adjusted as per cost of inflation index (CII)) less cost of improvement. Long-term capital gain (LTCG) is taxable at 20% (plus applicable surcharge and education cess). The LTCG can be claimed as exempt from income-tax if it is re-invested in India in specified bonds or one residential house in India (to be either purchased within one year before or two years after or constructed within three years of transfer of the asset). For tax exemption to continue, there are restrictions on the sale of new house and amount of investment made in bonds.

I worked in a foreign country for two months. I paid tax on that income at the rate of 40%. For the rest of the year, I received salary in India. Am I still supposed to pay tax in India as a resident and ordinarily resident (ROR)? Please advice.

—Nitin Kumar

As you qualify as an ROR in India, your worldwide income is taxable in India and you will be required to report your foreign income in the Indian tax return. Accordingly, salary received in the foreign country will be taxable in India. You will need to add the foreign salary income in your total income and calculate tax on total income. You may claim foreign tax credit in India:

(a) If there is a Double Taxation Avoidance Agreement (DTAA) between India and the foreign country, calculate foreign tax credit as per the relevant provisions of DTAA;

(b) If there is no DTAA between the two countries, calculate foreign tax credit as per Section 91 of the Income-tax Act, 1961 i.e. lower of rate of tax in India or foreign country on the doubly taxed salary income.

Also, you will need to file Form 67 electronically on or before the due date to file the returns. Form 67 needs to be supported by a certificate or statement specifying the nature of income and the amount of tax deducted or paid. The certificate or statement may be issued by:

a. Tax authority of the country where tax has been paid; or b. Person responsible for deduction of tax; or c. Self-declaration by the individual duly supported by the following documents:

(i) Acknowledgement of online payment or bank counter foil or challan for payment of tax where payment has been made by the individual; (ii) Proof of tax deduction in the country in which the tax has been deducted.