We split your question into two parts, covering sale and purchase of property separately. In relation to the first part of the question relating to sale of property, please note that gains arising from sale of property in India are subject to capital gains tax. Such gains could be short term or long term, based on the duration of ownership of the property. Gains from the sale of property owned for a duration exceeding two years shall be considered as long term gains and gains from properties owned for a duration less than two years would be considered as short term gains. In case of sale of property by an NRI, the buyer is obliged to withhold tax at source from sale consideration, termed as TDS (Tax Deducted at Source) based on the applicable rates and remit this TDS to the department under the tax account of the seller.

The seller can claim benefit of this TDS deduction while filing return of income and seek refund of tax paid in excess, if the case is based on tax computation filed with the department and assessment issued by the department.

Income tax regulations also permit the seller to apply for a lower tax deduction certificate from the Income Tax Department prior to the conclusion of the property sale transaction. The entire process of submitting application and receipt of certificate is done online. If such consent is received, the buyer shall withhold TDS at a nil rate or lower rate stipulated in the certificate issued by Income Tax department. This certificate clearly mentions buyers name, percentage of tax that should be withheld as TDS and validity of this certificate.

As to the second part of your question for purchase of property, Section 54 of the Indian Income Tax Act comes to your rescue. Gains arising from sale of property could be invested in another property either one year before the sale of property or within two years from the sale of property. Exemption from long term capital gains tax is available to the extent of gains invested in the purchase of property. However, please note that the said exemption could be reversed if the property purchased subsequent to sale transaction is sold within three years from the date of purchase.

In case you do not succeed in purchasing the property before submitting return of income, gains arising from the sale of property could be deployed with a PSU bank or other banks offering Capital Gains Account Scheme.

Section 54 EC of the Indian Income Tax Act also offers an alternative to invest funds in bonds issued by government entities for a period of five years and the cap is Rs. 50 lakhs. You are permitted to invest in these bonds within a period of six months from the date of sale of property, or earlier if you are due to file your return of income.

Please plan your transaction(s) for sale and purchase of property, keeping in view the above provisions.

– CA Dhaval Jasani is the founder and CEO of ZTI, a boutique advisory firm based in Dubai. He has experience handling assignments across geographies, including but not limited to East Africa, Central Africa, South Africa, West Africa, Europe, UAE and India. He has led fundraising, forensic accounting, arbitration, due diligence, mergers, acquisitions, structures, compliance and techno-economic feasibility studies in his more than two-decade old career.