They say buying real estate and sleeping for Three years is it a great Tax Saver Formula. If the objective of the NRI (Non-Resident Indian) when making investment in real estate is to make money by selling it, then such NRI should hold the property for no less than three years after the date of purchase. The property whether commercial or residential when sold by a NRI, then similar to Resident Individual, income-tax is payable on the Capital Gains i.e. amount received by selling the real estate.
Long term capital gains are applicable in case the property is sold after holding it for a minimum period of three years.
Where as if the property is sold in less than three years from the date of purchase, the profit arising on such transaction is treated as Short-Term Capital Gain.
As per the prevailing Income-tax Law Short-Term Capital Gain is taxed by added with other Indian income of the Non-Resident Indian. However, if the property is sold after three years of purchasing it, it becomes Long-Term Capital Gain for which tax advantages can be taken by the NRI.
The following are a few of the advantages that are applicable
1. The benefit of Cost Inflation Index is made available to a Non-Resident Indian whereby substantial tax on Long-Term Capital Gain can be reduced.
2. The maximum income-tax payable on Long-Term Capital Gain is just 20 per cent
3. NRI can save long term Capital Gains Tax by making investment in new residential property based on the provisions contained in the Income-tax Law.
Conclusion is that its a good idea to sell the property after a minimum of three years by an NRI. This will help them to save a substantial amount of income-tax after the sale of the property by utilizing the Long-Term Capital Gain.
By engaging a professionally managed property management company, the NRI can enjoy the rental income also on the property and get good advice on the timing of sale of the property.