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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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how do I pay for capital gains tax on a share of a property ...

Customer Question

how do I pay for capital gains tax on a share of a property I inherited (from my late father) that we recently sold? we were told that the indian govt. will not release the funds unless we pay 20%, is this correct and how do I do this from the U.S.?we are not planning on using to invest in more indian property but to start a business in india, thanks anyone:)
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

DaerCustomer

I need a bit more information.

What is your status in the United States?

If you are a citizen of the United States, do you have special visa status in India?

Customer: replied 6 years ago.
I am a U.S. citizen, born and raised in chicago, I have no other visa.
No one in my family wants to pay taxes to the indian govt for the sale of inherited property over there and then also pay taxes here. We are only trying to get the money released for our personal and business use in india.
The lawyer that helped with the sale of the property indicated that the capital gains taxes will be about 20%. We just want to know the procedure for paying the taxes from abroad, maybe forms, numbers, paperwork, ect, thanks
Expert:  Ed Johnson replied 6 years ago.

Dear funsky,

I have to run to an appointment and will be back in a bit to finish this. i just do not want you waiting for an answer this moment.

You can file on line, but I need to direct you more.

I the mean time, you can look over this list of forms for income tax.

 

http://incometaxindia.gov.in/it%20forms.asp

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 3 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
I can wait for your help, as long as I know that you know what you are talking about I think you can help us, I was a little unsure about this online help at first.
I will look at the forms, and accept your answer if you can help some more I will appreciate it, I may have other questions to post if you have the knowledge and are willing.
So far we have depostited checks from the buyer into a citibank account in india. We don't know if the funds can be used yet. I think we were sent a bill of sale but in a language we don't know.
Expert:  Ed Johnson replied 6 years ago.

Most likely the language is Hindi or Punjabi....I would be surprised if it were something else.

capital gains on inheirted property that has been sold, is figured using the cost basis fo the person from whom you inherited it. So your cost, in figuring capital gains the cost of the person from whom you inheritted the property.

However, If the property was first acquired by the previous owner before April 1, 1981, then the Fair Market Value (market price) is used.

If the FMV on that date is higher or lower than the original cost? Then the higher figure is taken into account.

If you inherited a share an dsold a share of hte property, then you would only be lible for your share of the tax.

Before I go further, I need to know something boaut your tax bill and the shares.

To me, it sounds like someone has already calculated the capital gains and determined your share of the tax is 20%. Is this right?

Who else did you inherit the property from and sell the property wiht. Are you one of 5 or six people? or one of two people, etc?

If it is true that someone has already calculated the tax, are they really just asking you to relaese your share of payment to them to pay it for you. (like pooling the money) or are they asking you to figure your own capital gains and pay the government directly?

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 3 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
okay, the language is not hindi because my mom would have understood it, it might be marati.
The propery was divided into 5 shares for each brother, our family share was the fifth then divided into four.
My late dad's father would have owned the property much before 1981, so I do believe it is the FMV at that date. We had the lawyer give us info which may have been from an indian cpa.
If I accept your answer can I send you a copy of what the cpa sent us? maybe you can figure this out better. I believe you are on the right track, let me know what I should do next between us , thaks
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

I do know you have to pay capital gains on the sell of this property as I described.

the tax rate will be 5 percent, 15 percent and 25 percent (and can be a combination)

letting me see the document may help. However we have a policy here of not contacting the customers directly outside this venue.

there is a tool in the tool bar, the tree icon, that will allow you to upload an image. You have to scan it and upload it here. Or, you can scan it and upload it to a shared website and provide me a link.

For example: https://www.google.com/accounts/ServiceLogin?service=writely&passive=true&continue=http%3A%2F%2Fdocs.google.com%2F&followup=http%3A%2F%2Fdocs.google.com%2F&ltmpl=homepage&nui=1&rm=false

if you can upload the document, i may be able to recognize its form and interpret it somewhat.

it may also be helpful to have a full translation of the document. (I think you ment the language to be Marathi)

YOu may find a local source, in the mean time here are a few internet sources:

http://www.translationindia.com/indian-languages-marathi.html

http://www.appliedlanguage.com/languages/marathi_translation.shtml

http://www.traduguide.com/translation/translator_24.asp?langfrom=en&langto=mh

http://www.wisetranslations.com/languages-translation/marathi

 

Customer: replied 6 years ago.
what I will do is try to give you the main points from the document we got from the lawyer, this was in english, it did mention capital gains based on a certain value as you mentioned,as well as other things.
I will accept the answer, I wonder if it is possible to post a new question with a synopsis of the document in question and have you answer that for another fee? Please let me know if you can offer any more advice, thanks
Expert:  Ed Johnson replied 6 years ago.

Dear fusnkymcdoogle,

Only that it really sounds to me like you are being asked to pay your share of the capital gains tax and that you really may not have to file anyother document.

You can post the synopsis here. I believe we have 72 hours. Since we opened the discussion on this, and it is a continuation of my request tosee the document, you can still post here. Just make sure you extend the time as needed. If the question expires, then you may have to post another question.

You do not have to pay again, but bonuses are always welcome.

Ed

Customer: replied 6 years ago.
Chartered Accountant’s advice under the Income-tax Act, 1961 as amended:

i)     The sale value determined by the Sub-Registrar for Stamp Duty purpose is Rs.27,699,782/- as per the sale deed executed between by you as co-owners and the buyer. Hence the sale consideration received by all the co-owners namely 8,000,000/- will not be considered for Income-tax purpose. Your taxable liability (you and your 3 sons) will be on 1/4th of Rs.27,699,782/- as the purchase consideration attributable to you and your 3 sons although, you have received only Rs.2,000,000/- as consideration amount on the Sale of the property.

ii)     From the above value, cost of the property including the land and the structures thereon will be deducted to arrive at the capital gains (profits) made by you and your sons. For this purpose the cost of the above property has to be worked out on the basis of the value as on 1.4.1981, from which date the indexation process starts. For this purpose we have to appoint a Govt. valuer to determine the cost value as on above date and then work out the price as on the date of the sale viz. 26.12.2007 being the date of execution of the Sale Deed, after considering the indexation as prescribed by the Govt. and the depreciation to be deducted taking into the account the age of the structure on the plot. There is one more complication arising due to the structures being occupied by the tenants. To what extent the value should be reduced is uncertain and purely at the discretion of the Income-tax Officer assessing the capital gains. The Income-tax officer may insist on the same sale value as determined by the Sub-Registrar i.e Rs.27,699,782/- or even higher value, assuming that the difference between this value and Rs.8,000,000/- received by you and all the other co-owners could be in cash. The above issues as determined by the Income-tax Officer may be challenged in appeal and another Govt. valuer may be appointed by the ITO/Appellate Commissioner   for a fresh determination of the sale value of the property. That new value may be higher or lower than what has been determined by the ITO which cannot be again challenged by us. It is therefore risky to go through the above procedure of appeal. This would also cause a delay of three to five years.

iii)     The better course therefore would be to deposit the sale consideration received by you in a Rupee NRO Account in India or in the USA but which amount cannot be converted in dollars. You may utilize the rupee amount for purchase of residential place in India out of the above amount received by you, within a period of two years or you may construct a new house, in India, for residential purpose within a period of three years. In that case there will be no tax liability. For all the above courses, however, you will require to file the Income tax assessment returns after 31.3.2008 but before 30.6.2008.
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

Ok so here is my summary of all the legaleze and my experience with the indian community with these kinds of issues.

this is merely legal advice, that says that the tax officer representing the governmentn will have to determine the taxability and taxes on this property.

he is saying, and I concur, that you can avoid the capital gains all together if you deposit the proceeds into an account in India, and reinvest it within three years from the sale date.

they are using the FMV index that I mentioned before from 1981.

the deposit to a rupee account shelters you from attempting to expatriate the funds before taxes are determined or you reinvest the money; there by avoiding taxes all together.

In either case you have to file the documents requesting an income tax assessment sometime before 30 June this year.

 

Customer: replied 6 years ago.
since we do not want to reinvest in more real estate, do we pay 20% to the indian govt. in capital gains taxes which then allows us to use the remainder to maybe start a business there (or what ever we want)?if that is correct, can you tell me what form(s) I would need to fill out and send?
Expert:  Ed Johnson replied 6 years ago.

The 20% they are quoting is an estimate. You would leave that money in an account until the Indian government tax representative figured the tax; you would use the account to pay the tax, and any left over would be yours to keep.

I will look up the forms for you.

But my recommendation, is to have the person who sent you the letter, to do them for you. it is much easier to have them do it, because they are on the ground in India.

YOu would use the remainder to invest in a business.

Customer: replied 6 years ago.
thanks, XXXXX XXXXX try to contact them, I will request you for any questions I post later
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

I apologize for taking so long to get back to you. It has been awhile and i am not sure of all of your qualificationso for exemptions.

So I am figuring you have to sue one of these three forms.

http://incometaxindia.gov.in/forms/2c.pdf

http://incometaxindia.gov.in/forms/2d.pdf

http://incometaxindia.gov.in/forms/3.pdf

You will need to check with your contact on the ground in India to make sure you have the right one.

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