If you own a property in India as a Non-Resident Indian, then this article will help you understand the rules and regulations for selling property in India. Read to know more!
There is a great deal of misinformation about the tax repercussions for Non Resident Indians who plans on selling their property in India. The tax liabilities and TDS deductions for NRIs wishing to sell property in India are examined in this article. This blog is for you if you want to sell your property while living outside of India. To learn more, keep reading!
How Is Capital Gain Levied For NRIs?
Are you aware that selling your house may require paying a significant tax? However, the majority of non-residents disagree with this. We advise property owners to know their tax obligations before getting into the nuances of selling a home. The tax on the sold property, however, will be determined based on the value of the transaction.
NRIs who sell residential real estate in India are expected to be subject to capital gains tax going forward. The amount of tax due depends on whether such a gain is a short-term or long-term return of capital. On the other hand, if a house property is purchased more than two years after its acquisition (Reduced in Budget 2017), there will be a long-term capital gain. If kept for two years or less, there would have been a short-term capital gain. For NRIs, the topic of inheritance has tax implications as well.
The sale deed date is still crucial when taxes are being calculated, though. Therefore, if the asset has been bought, evaluating the original owner’s date of acquisition is preferable to ascertain whether a capital gain is long-term or short-term. The price of the online property registration in the scenario will be what the owner originally paid.
What Do You Need To Know About Expandable Tax Amount?
Short-term profits are taxed at the appropriate income tax slab levels for the NRI, depending on the taxable income in India for the NRI. Long-term capital gains are assessed at a rate of 20%.
Taxable TDS: What Should Be The genuine Amount?
The purchaser of real estate sold by an NRI is required to withhold TDS at 20%. A TDS of 30% will be applied if the property has been sold earlier than two years (calculated from the time of acquisition).
The Procedure Of Selling a Property By An NRI
In order to adhere to the given process of property selling, a Non-Resident Indian should take into consideration the following:
- Engage a brokerage company to thoroughly assess the property’s value
- Finish the necessary documentation for the property sale. A trustworthy person can be given Power of Attorney (PoA) to complete the essential tasks even if the grantor is not physically present
- Be aware of your tax responsibilities. Capital gains are taxed in the year the asset is sold, whether or not the sale sum has been paid in full
The taxing specifics are briefly explained as follows:
- If a person sells a property after two years from the time they first bought it, they must pay long-term capital gains tax (this was amended from three years following Budget 2017)
- Short-term capital gains taxes are based on a person’s income band, and long-term capital gains taxes are 20%
- The buyer of a property from an NRI who is an Indian citizen is required to withhold TDS at a rate of 20% of long-term capital gains (LTCG). 30% TDS will be deducted if the property is bought before two years have passed. For deducting the TDS, the buyer must get a TAN (Tax Deduction and Collection Amount Number)
- When evaluating whether a capital gain is long- or short-term in the case of an inherited property, the time of the original owner’s purchase is taken into consideration. In this case, the price of the property would be determined by the sum that the previous owner paid for that particular piece of property
- The payment provided to the NRI is reduced by TDS. All pertinent details regarding TDS and its rate must be included in the selling agreement between the NRI seller and the buyer
- The money can only be deposited into an FCNR or NRE/NRO account. The capital gains from the property are not taxed if the NRI pays them back with other real estate or bonds that are free from taxes.
Required Documents For Selling a Property In India Owned By An NRI
You should take the time to complete your thorough documentation before you sell the home. You should be able to quickly discover the transaction amount with the use of proper paperwork:
- Passport – his legal document serves as proof of identity for the party conducting the transaction
- PAN Card – This document is necessary if you want to file for a tax-exempt status certificate after you buy a property. NRIs from a select few nations are granted PAN numbers that include their foreign residence’s address
- Tax Returns – Tax returns from the NRI’s ownership of the property should be easily accessible if they have been profitable
- Address Proof – Both Indian and foreign addresses require supporting documentation. This category includes documents like ration cards, phone and power bills, life insurance policy statements, Aadhar cards, and others
- Sale Agreement – A sale deed is a legal document that commits the parties to buy and sell a specific piece of real land
- Occupancy Certificate – Proof that the seller has paid all required payments to the organisation is needed in the form of documentation from the society. An occupancy certificate attests to the apartment’s occupancy, and the allocation letter bestows official owner status on the building or flat
- Certificate of Encumbrance – To demonstrate that the asset is completely free of any debts to authorities, a certificate of encumbrance is necessary.
Exemption Under Section 54
This exemption applies to long-term capital gains from the sale of an NRI’s house property, whether self-occupied or rented out. It’s important to note that you’re required to invest only the amount of capital gains, not the entire sale receipt, although the purchase price of the new property may exceed the capital gains. However, your exemption is limited to the total capital gain from the sale. You can buy the new property either one year before or two years after selling your property, or invest in construction completed within three years from the sale date.
In the 2014-15 Budget, it was specified that only one house property can be purchased or constructed using the capital gains to qualify for this exemption. Additionally, starting from the assessment year 2015-16 (or financial year 2014-15), the new property must be located in India; properties bought or constructed outside India are not eligible for this exemption. Remember that this exemption can be revoked if the new property is sold within three years of purchase.
If you haven’t been able to invest your capital gains by the filing deadline (typically July 31st) of the financial year in which you sold your property, you can deposit the gains in a PSU bank or other designated banks under the Capital Gains Account Scheme, 1988. You can then claim this as an exemption from your capital gains in your return, thereby avoiding tax on it.
Exemption Under Section 54F
This exemption applies to long-term capital gains from the sale of any capital asset except residential property. To qualify, the NRI must buy a residential property within one year before or two years after the asset’s sale, or construct one within three years after the sale. The new property must be in India and not sold within three years of acquisition. Additionally, the NRI can’t own more than one property (aside from the new one) or acquire another residential property within two years or construct one within three years. The entire sale proceeds must be reinvested; full exemption applies if the entire amount is reinvested, otherwise, it’s allowed proportionately.
Exemption is also Available Under Section 54 EC
You can avoid paying tax on your long-term capital gains by investing in specific bonds, such as those issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC). These bonds mature after 5 years (previously 3 years) and should not be sold before this period from the date of selling the property. It’s important to note that you can’t use this investment for any other deduction. You have a 6-month window to invest in these bonds, but to qualify for the exemption, you must invest before the return filing date. The 2014 Budget sets a maximum investment limit of ₹50 lakhs per financial year in these bonds. NRIs need to make these investments and provide relevant proofs to the buyer to avoid TDS deduction on the capital gains. NRIs can also claim a refund for any excess TDS deducted at the time of filing their returns.
Conclusion
This article will be useful for those who would try to sell an NRI-owned property in India. It will aid readers in comprehending the nuances of the subject. The legal professionals at Vakilsearch, however, can also help if you need legal assistance in selling a property in India while you are based abroad. Call us right now to learn more about how we operate.
Frequently Asked Questions
What are the rules for NRI selling property in India?
In the process of selling property by an NRI, the purchaser is tasked with deducting Tax Deducted at Source (TDS). Typically, the standard TDS rate for NRI property sales stands at 20%. Yet, if the property changes hands within two years of purchase, a higher TDS rate of 30% will be enforced.
How are capital gains taxed for non residents in India?
Long-term capital gains from the transfer of unlisted securities, shares, debentures, etc., incurred by a non-resident individual or a foreign company, are subject to a 10% tax rate (plus surcharge and health and education cess), without the option for indexation benefits.
How can NRI avoid TDS on property sale?
Among the extensive array of advantages provided by mutual funds, one notable benefit is their assistance in helping NRIs circumvent higher TDS. NRIs are only required to invest a minimum of ₹5000 or smaller increments such as ₹500 or ₹1000 in mutual funds.
Do NRI need Aadhar card to sell property in India?
According to Rule 114C, possessing an Aadhar card is not obligatory for NRIs engaging in property transactions; instead, they simply require an NRO account.
Can NRI sell property in India without TDS?
If you're an NRI selling property in India, the buyer will deduct 20% as Tax Deducted at Source (TDS) for Long Term Capital Gains Tax if the property has been held for more than two years.
Do NRI need RBI permission to sell property?
No, The RBI has clarified that NRIs are not required to obtain prior authorisation for selling or transferring any property.
Can I sell my property in India and bring money to USA?
Non-Resident Indians (NRIs) can transfer or bring back the proceeds from the sale of property in India to the US. Nonetheless, there's a cap of $1 million per calendar year for funds repatriated from India, encompassing all other capital account transactions.
How can NRI avoid capital gains tax?
Non-Resident Indians (NRIs) are eligible to seek an exemption on capital gains arising from the sale of a long-term residential property by investing in a new residential house in India, as per Section 54.
How much tax does a US citizen pay to sell property in India?
If you're an NRI selling a property, the buyer typically needs to withhold 20% of the capital gain as TDS. If you've owned the property for under 2 years, you might face a 30% capital gains tax obligation.
What is the law for NRI property in India?
NRIs and OCIs are allowed to purchase both commercial and residential properties in India without the need to notify or communicate with the Central Bank. However, NRIs are not permitted to buy agricultural land, plantations, or farmhouses in India.
