Non-Resident Foreign Citizen Child Will Have To Pay Tax On Sale Of Property In India

I have two daughters. One is residing in India and the other is a US Citizen. I am planning to prepare a Will bequeathing all my assets, including one residential house, equally to both my daughters. My daughter, who is a US citizen, doesn’t have a PAN. When the house property is sold in India, will she have to pay taxes and file her income tax return in India? Will the double tax avoidance agreement (DTAA) not become applicable on her share of capital gains? If she has to pay taxes here in India, can my other daughter (Indian citizen) pay the capital gains wholly and deduct 50 per cent of capital gains from her sister’s (US citizen) share of sale value, while remitting her share?

Answer: Article 13 of the DTAA between India and the US entitles each country to levy tax on capital gains as per their domestic laws. So, your daughter will have to pay tax on long-term capital gains as and when the immovable property inherited by her in India is sold. 

Under the Indian tax laws, the buyer is under an obligation to deduct tax under Section 195 at the applicable rate at the time of making payment made to a non-resident. As and when the property is sold, the buyer will deduct tax at the time of remitting the share. Your Indian daughter alone cannot discharge the tax liability on sale of property jointly owned by both your daughters. The alternative suggested by you will not work, as the liability to pay tax has to be discharged by the owner of the asset. In order to claim credit for tax deducted at source (TDS), she will have to apply for a PAN in India.

If you bequeath the house to your Indian daughter only, then she alone will be liable for capital gains tax. Post the sale, the Indian daughter can remit share of her US sister as a gift on which there is no tax liability in India, but the tax implications in the US for this gift transaction will have to be evaluated. However, if this arrangement does not work, there is no way out for your US daughter, but to pay taxes in India and file her ITR as and when the property is sold. 

I am a 50-year-old unmarried Hindu. I have adopted a daughter. Can I have a Hindu Undivided Family (HUF)?
 
Answer: Generally, for an HUF to come into existence, a minimum of two coparceners are required. Earlier, only male members were considered as coparcener, but after the amendment of Section 6 of the Hindu Succession Act, 1956, in 2005, daughters have been put on par with sons. So, a daughter also becomes a coparcener of the HUF. 

For an HUF to come into existence, marriage of the person is not mandatory, but what is required is that there should be minimum of two coparceners. A son or daughter can be either born in the family or can be adopted. Do note that a coparcenary comes into existence the moment a son or a daughter is adopted. So on and from the date of adoption, your HUF had come into existence, and nothing more is required to be done in this regard. However, while applying for PAN of HUF, you might have to submit an affidavit stating the date on which the HUF came into existence, as well as the date on which the daughter was adopted, as well as the details of karta and all the coparceners.

The author is a tax and investment expert.

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)