25. The assessee an NRI wants to sell the House Property of his father who purchased it 40 years ago and died leaving behind his heirs i.e. his wife, son and his two daughters. The assessee needs your advice on the following issues.

1. Facts of the Case

• The assessee is a Non-Resident Indian (NRI).
• He intends to sell a house property that originally belonged to his late father.
• The property was purchased approximately 40 years ago (around 1984–85).
• After the father’s death, the property devolved upon the legal heirs: his wife (widow), one son (the NRI assessee), and two daughters.
• The assessee is now seeking advice regarding the tax implications, computation of capital gains, procedural requirements, and remittance of sale proceeds as an NRI.

2. Issues in the Case [Questions]

1. What are the tax implications of selling the inherited property for the NRI and other co-owners?
2. How is capital gain computed when the property is inherited and was purchased long ago?
3. Which indexation year should be considered for calculating the cost of acquisition?
4. Is TDS applicable on sale proceeds for the NRI assessee under Section 195?
5. How can the sale proceeds be repatriated by the NRI after tax compliance?

3. Legal Principles Covered

A. Capital Gains on Inherited Property – Section 49(1) & Section 2(42A)

• As per Section 49(1), when a capital asset is acquired by way of inheritance, the cost of acquisition shall be deemed to be the cost to the previous owner (i.e., father).
• As per Explanation 1(i)(b) to Section 2(42A), for computing holding period, the period for which the previous owner held the property shall also be included.
• Since the property was held for more than 24 months (in fact, 40 years), it qualifies as a Long-Term Capital Asset (LTCA).

Hence, Long-Term Capital Gains (LTCG) provisions apply.

B. Indexed Cost of Acquisition – Section 48 (Read with Section 49)

• As per the amendment introduced by Finance Act, 2017, if the property was acquired before 1st April 2001, the assessee can substitute the cost with the Fair Market Value (FMV) as on 1st April 2001.
• Indexation is applied from FY 2001–02 (CII = 100) till the year of sale.

C. Tax Deducted at Source (TDS) – Section 195

• Under Section 195, any buyer making payment to an NRI for purchase of property is required to deduct TDS at applicable rates.
• In case of LTCG for NRIs, TDS is usually deducted at 20% + surcharge + cess, unless a certificate for lower/nil deduction is obtained under Section 197.

D. Repatriation of Sale Proceeds – FEMA & RBI Guidelines

• After payment of applicable taxes, NRIs are allowed to repatriate sale proceeds of inherited property up to USD 1 million per financial year, subject to submission of:
  • Proof of inheritance,
  • CA certificate in Form 15CB,
  • Declaration in Form 15CA.

4. Possible Judgement / Professional Advice

Based on the facts and law:

1. Capital Gains Computation:
   • The NRI and other co-owners must compute Long-Term Capital Gains individually based on their respective share.
   • The cost of acquisition will be the FMV as on 01.04.2001, which can be determined via a registered valuer.
   • Indexed Cost = FMV × (CII in year of sale / CII of 2001–02)
2. Tax Rates:
   • LTCG for NRIs is taxed at 20% + surcharge + 4% cess.
   • TDS under Section 195 will be automatically deducted by the buyer, unless an exemption certificate is produced.
3. Advance Planning:
   • File Form 13 to obtain a lower/nil TDS certificate if eligible.
   • Consult a chartered accountant to help file Form 15CB/15CA for repatriation.
4. Joint Ownership:
   • Each co-owner (mother, son, daughters) will compute tax based on individual share in the property.
   • They may mutually agree to allow the NRI to receive sale proceeds and settle shares later, but for tax purposes, each person’s gain is separately computed and taxed.