• Buying property from an OCI

Hello,

We Indian residents & are in process of buying a residential property (flat) from a couple who are citizens of Hong Kong as per the passports they hold but also have an OCI card (issued in 2008). They have been in India for over a year now and and hold Indian Aadhar card and PAN card.
My questions are:
1. Does an OCI become an RI (for tax purposes) on staying in India for 182 days in a financial year?
2. If Yes, what government document should be obtained to confirm residency status for taxation on India? If TRC a relevant document? 

Further facts about this property transaction:
--Paid initial 10% of the registration value at the time of signing ATS (agreement to sell), the cheque was deposited by the seller in their jointly held NRE account (Axis Bank). 
--Registration value of property is 2.7 Cr. 
--Flat bought by Seller in 2012, possession taken in 2019, registration value of 2.65 Cr

1. What will be the final tax norm that will be applicable on this transaction?
-----Can the seller(s) be considered Resident Indians after staying in India for >365 days despite holding Hong Kong passport & OCI status (since 2008)
----- Or how can the seller get tax exemption?
2. What are the considerations/future implications for us as buyers in such a deal?

Will look forward to your response.
Asked 12 months ago in Taxation

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11 Answers

Yes if oci stay less then 182 days they need to applicable tax earned in India but they can avoid paying tax of the same in their native country by DTAA provision. But if more than 182 days they will still be liable to pay tax on only income earned in India. 

 

Except aforesaid provision only 20 percent tds will be deducted being oci. 

Prashant Nayak
Advocate, Mumbai
24239 Answers
51 Consultations

4.4 on 5.0

Regardless of the seller becoming RI, they will be liable to capital gains in India on which they have to pay capital gains tax depending on the period for which they held the asset (whether 3 years or less than 3 years). That is the seller's liability with which the purchaser is not concerned

Since the seller is OCI, you have to deduct full TDS @20% from the sale consideration and deposit that with the government treasury

There is no restriction as such against NRI/PIO/OCI from selling their Indian assets and there is no requirement for a resident status for purpose of such sale by the seller

The seller will be liable to pay long term capital gains tax because the property was allotted in 2012 and is now being sold in 2020. Therefore his holding period is more than 3 years from date of its purchase. Section 54F of income tax act will apply

Yusuf Rampurawala
Advocate, Mumbai
6435 Answers
54 Consultations

5.0 on 5.0

1. No.

2. He is not an Indian citizen hence the 20% TDS have to be deducted from sale consideration amount.

The seller being a foreign citizen he is liable to pay the capital gains tax applicable to foreign citizen.

As a buyer you have to deduct20% TDS out of sale consideration amount.

T Kalaiselvan
Advocate, Vellore
74174 Answers
1203 Consultations

5.0 on 5.0

The property belongs to the person who holds a HONG KONG passport. If he lives for 182 days then he has to pay taxes in India unless the countries have a DTAA ie double tax avoidance agreement.

The seller has to pay capital gains tax on the money he gets from the sale.

The buyer has to pay stamp duty and court fee.

That is all.

You have to pay capital gains tax on the sale ig you sell the property unless you invest elsewhere ie buy another property or invest somewhere.

Rahul Mishra
Advocate, Lucknow
13048 Answers
42 Consultations

5.0 on 5.0

Hi 

1)  Indian citizens who are Persons of Indian Origin (PIO), Overseas Citizens of India (OCI), or Foreign Citizens and who are residents of India for more than 182 days have to pay tax and file income tax return in India. The income tax filing is usually based on his/her global income and is subject to the conditions of DTAA (Double Tax Avoidance Agreement) and hence TRC is a relevant document. 

2) The seller couple will continue to be considered as Non resident Indians and are liable to pay CAPITAL GAINS TAX @30.9% (given that possession happened in the year 2019) 

3) Buyer has to 

a) Obtain PAN Card copies of the seller.

b)Obtain copies of seller passport and OCI card.

c) Pay TDS 1% of sale consideration 

d) Pay sale consideration in Indian rupees only by way of cheque

e) Obtain copies of seller passport and oci card.

f) The money has to be deposited by the Seller in his NRO account(so kindly ask whether the account is NRO account )

 

Hope this information is useful. 

Rajgopalan Sripathi
Advocate, Hyderabad
2119 Answers
394 Consultations

5.0 on 5.0

1. Yes , as per law, if any Indian citizens who are Persons of Indian Origin / Overseas Citizens of India or Foreign Citizens stays for more than 182 days have to pay tax and file income tax return in India.

2. Yes

3. You should pay the amount in Indian rupees only after paying 20 percent TDS as per rule. 

Mohammed Shahzad
Advocate, Delhi
7982 Answers
85 Consultations

5.0 on 5.0

This rule shall be applicable for NRIs and not for the foreign citizens.

If you do not deduct 20% tax from the sale consideration amount you would be held liable to pay the same to the government along with the penalty at a later stage.

As per Aadhaar Act, 2016, NRIs/PIO/OCI card holders are eligible for enrolment of Aadhaar card only if they reside in India for over 182 days in the last twelve months immediately preceding the date of application for enrolment.

The Overseas Citizenship of India (OCI) is an immigration status permitting a foreign citizen of Indian origin to live and work in the Republic of India indefinitely,  but this shall not entitle the foreign citizen to become resident Indian to claim the said privileges.

You demand the documents from him to prove that he is an Indian citizen.

As per the provisions of section 5(1) (g) of the Citizenship Act, 1955, a person who is registered as an OCI for 5 years and is residing in India for 1 year out of the above 5 years, is eligible to apply for Indian Citizenship.

Hence you ask him to prove that he is an Indian citizen 

An OCI is entitled to life long visa with free travel to India.

an OCI is exempted from registration with Police authority for any length of stay in India.

An OCI will not be given Indian passport. Indian Passports are given only to Indian citizen.

Therefore if he is claiming to be an Indian citizen, ask him to produce the Indian passport, if he is not able to produce the Indian passport confirming that he is an Indian citizen, then you may have to treat him as a foreign citizen irrespective of his long stay in India.

Accordingly you may have to deduct TDS at the rate of 20% from the sale consideration amount, let him claim refund afterwards.

 

 

T Kalaiselvan
Advocate, Vellore
74174 Answers
1203 Consultations

5.0 on 5.0

Yes if he stays in india for 182 days he can take resident benefits but need to pay applicable tax in India for income earned. Secondly the proof of residence of 182 days need to be submitted in form of certificate of residence. His passport to verify the same

Prashant Nayak
Advocate, Mumbai
24239 Answers
51 Consultations

4.4 on 5.0

TDS would be deducted at the rate of 20%..

Mohammed Mujeeb
Advocate, Hyderabad
19011 Answers
28 Consultations

4.5 on 5.0

Dear client,

This is to inform you that

  • In India, as in many other countries, the charge of income tax and the scope of taxable income varies with the factor of residence.
  • According to Section 6 of the Income Tax Act, A person is said to be “resident” in India in any previous year if he (a) is in India in that year for an aggregate period of 182 days or more; or (b) having within the four years preceding that year been in India for a period of 365 days or more, is in India in that year for an aggregate period of 60 days or more.

The above provisions are applicable to all individuals irrespective of their nationality.

 

Therefore, Overseas Citizens of India (OCI), or Foreign Citizens and who are residents of India for more than 182 days have to pay tax and file income tax return in India.

  • That, Section 6 of the Income-tax Act, 1961, prescribes the tests for determining the residential status of a person and the couple does not fit into that therefore they shall be considered as non- resident.
  • When an NRI sells property, the buyer is liable to deduct TDS @ 20% (Section 195 of the Income Tax Act).
  • The exemption benefits available on Long Term Capital Gain under section 54 and section 54EC is also available to the seller (i.e. NRI).
  • It is mandatory for the buyer of the property (only when the seller is a non-resident) to obtain Tax Deduction and Collection Account Number(i.e. TAN). To obtain PAN card and passport details.

Pulkit Prakash
Advocate, Delhi
309 Answers
7 Consultations

5.0 on 5.0

1. No they will not become RI Because they have passport of Hong Kong and not of India. 

2. Sellers need to pay capital gain tax as per Indian laws and you can deduct TDS from their consideration and deposit it.

Mohit Kapoor
Advocate, Rohtak
10688 Answers
7 Consultations

5.0 on 5.0

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