I am presently a non-resident intending shortly to settle down in India. I am disposing of my property abroad. I would like to be advised as to the tax incidence on capital gains on sale of property abroad, either during my stay abroad or shortly after my settling down in India. My settlement in India depends on the prospect of tax incidence on sale of my property. Advise on my tax liability.
Capital gains on sale of property abroad is foreign income, which is taxable in India only for a resident and ordinarily resident. Both non-residents and resident but not ordinarily residents are not liable for tax on foreign income, which includes tax on capital gains on sale of immovable property abroad. Only resident and ordinarily resident are taxable on foreign income.
A person is a resident in India vide Sec. 6(1) of the Act, if he satisfies either of the following conditions: (i) He is in India for 182 days or more during the previous year (financial year starting from April 1 to March 31), or (ii) has been in India for 60 days or more in India with his stay in India for the immediate past four years in all amounting to 365 days or more.
Even if he happens to be a resident on the above definition, he may still be a resident but not ordinarily resident, if he satisfies either of the following conditions: (i) he had been a non-resident for nine out of ten immediately preceding years or (ii) has been in India for less than 730 days in India in seven preceding years.
It is likely that he will have the status of a resident and not ordinarily resident for the year of arrival and one or two more years depending upon whether he was a resident in the year of arrival.
The reader has not stated the situation of the property. If it is situated in a country with which India has Double Tax Avoidance Agreement, there is likelihood of exemption even for resident and ordinarily resident from liability in India on sale of immovable property abroad, since there is a provision in the agreements with almost all countries that capital gains tax is leviable, if at all, only by the country, where the immovable property is situated, so that there should not be any liability, even if the reader meanwhile becomes a resident and ordinarily resident in view of the Double Tax Avoidance Agreement notwithstanding the domestic law on the subject, since Double Tax Avoidance Agreement overrides the domestic law.