As a non-resident, you are required to pay tax on the sale of the ancestral property in Mumbai, similar to a resident. Since the property has been held for more than 24 months, any profits from the sale will be considered long-term capital gains.
For the calculation of capital gains, the cost of acquisition is critical. In the case of inherited property, the cost is considered as the price paid by the previous owner. Since the property was acquired before 1 April 2001, the cost of acquisition for capital gain purposes is the fair market value of the property as of 1 April 2001.
To determine the fair market value, you can use the applicable rates or values such as the circle rate or stamp duty rate of the property on that date. If these values are unavailable, obtaining a valuation report from a registered valuer is necessary. It is important to note that the valuation report’s value should not exceed the prescribed rates or values.
The cost is then increased by applying the cost inflation index of the year of sale. The difference between the sale price and the indexed cost constitutes the long-term capital gains, taxed at a flat rate of 20%. To mitigate this tax, you have the option to invest the indexed long-term capital gains in a residential property or specified capital gains bonds within the specified period. As a non-resident, the buyer is obligated to deduct tax at 20% on the computed long-term capital gains if you provide documentary evidence of the cost. Failure to provide proof will result in the buyer deducting tax at 20% on the entire sale consideration.
If you do not have any other income taxable in India, you will be required to pay tax at 20% on the capital gains, as non-residents cannot offset the shortfall in the basic exemption limit against long-term capital gains.
Source : Mint