NRI Selling Property in India? Avoid Costly Mistakes & Maximize Your Profits – Here’s How!
A Complete Guide to Selling Your Property in India as an NRI
It may appear daunting to sell property in India as an NRI, but if you know the ropes, it is not that difficult. To start off, first let's learn about the types of properties you can sell and to whom.
What Kind of Properties Can NRIs Sell in India?
NRIs are entitled to sell residential and commercial properties in India to:
- Resident Indians
- Other NRIs
- Persons of Indian Origin (PIOs)
Still, selling agricultural lands, farmhouses, or plantation properties is restricted. If you inherit these properties, resident Indians are the only buyers entitled to purchase them.
For the majority of inherited properties, there are no sale restrictions. But if you inherit property from a non-Indian origin person, there can be extra rules you must comply with.
Restrictions on Selling Inherited Property
Selling inherited property is usually the same as selling any other NRI property, but there are some extra rules to follow, especially regarding the repatriation of funds.
As per Section 6(5) of the Foreign Exchange Management Act
(FEMA), the sale proceeds of the inherited property cannot be remitted
outside India without the approval of the **Reserve Bank of India (RBI). It's
always better to take professional advice if you are in this scenario.
How Can NRIs Sell Their Property in India?
One of the shared worries of NRIs is selling property without physically being in India. Fortunately, there's an easy way out: you can appoint a Power of Attorney (POA)
You can either sell your property in India while overseas
with the assistance of a POA, or when you're in India.
How to Appoint a POA as an NRI
A POA can be a reliable family member or friend who will sell the property on your behalf. To appoint a POA:
1. Have the POA document notarized and attested by
the Indian consulate in your home country.
2. Forward the notarized POA to your agent in India.
3. Have the document stamped and registered in India
within three months.
TDS on Property Sale by NRIs
When selling property in India, Non-Resident Indians (NRIs) are subject to Tax Deducted at Source (TDS). The TDS rate for NRIs differs from that of residents and is generally higher. The rate depends on the type of property, the duration of its ownership, and the property value.
For properties held for more than two years (long-term capital assets), the TDS rate is 20%. For properties sold within two years (short-term capital assets), the TDS rate is 30%.
The TDS rates for NRIs are as follows:
- For properties held for over two years (long-term capital assets):
- TDS rate: 20% + 4% cess
- For properties sold within two years (short-term capital assets):
- TDS rate: 30% + 4% cess
The rate of TDS for properties above a certain value is influenced by additional surcharges and cess as per the tax laws.
- For properties below Rs 50 lakh: TDS is 20% (for long-term assets) or 30% (for short-term assets) + 4% cess
- For properties between Rs 50 lakh and Rs 1 crore: TDS is 20% (for long-term assets) or 30% (for short-term assets) + surcharge + 4% cess
- For properties above Rs 1 crore: TDS is 20% (for long-term assets) or 30% (for short-term assets) + surcharge + 4% cess
For properties sold in the FY 2018-19 and beyond, higher surcharges are applicable for properties with a sale value exceeding Rs 2 crore:
- Properties above Rs 2 crore: TDS rate: 25%
- Properties above Rs 5 crore: TDS rate: 37%
Please note, the TDS is generally deducted by the buyer and paid directly to the Income Tax Department. Additionally, NRIs are required to obtain a Tax Deduction and Collection Account Number (TAN) to facilitate TDS payments.
How to Pay TDS on Property Sale
The purchaser of your property is liable for withholding the TDS and remitting it to the Income Tax Department. The procedure consists of the following steps:
1. The buyer procures a Tax Deduction Account Number
(TAN).
2. They remit the TDS to the government by the 7th of the
subsequent month.
3. They submit Form 27Q (quarterly TDS return).
4. The purchaser gives you Form 16A (certificate of
TDS), which is crucial for refund or repatriation of funds.
Capital Gains Tax
Capital gains tax is levied if you sell a property in India. The taxability is based on the holding period:
- Long-term Capital Gains (LTCG): If the property has
been held for over two years (earlier three years), the gain is taxed at 12.5% without the benefit of indexation.
- Short-term Capital Gains (STCG): If the property is sold within two years, the gains are taxed based on your applicable income tax slab.
For inherited properties, the capital gains tax is based on
the holding period of the original owner.
Tax Exemptions on Capital Gains for NRIs
Section 54: Exemption for Long-term Capital Gains
You can opt for an exemption if you reinvest the capital gains in a new house property. The exemption is restricted to the capital gains amount, and the new property should be in India.
Section 54F: Exemption for Non-Residential Property
Under Section 54F, when you sell any capital asset (except a residential house), you can exempt the capital gains if you buy a house within a certain time limit.
Section 54EC: Exemption Through Investment in Bonds
By investing as much as Rs 50 lakh in government-issued
bonds like those by NHAI or REC, you can avoid paying tax on long-term
capital gains. These bonds have a 5-year lock-in period.
Tax Implications in Your Country of Residence
If you're an NRI residing in a nation like the United States, do take note of the Double Taxation Avoidance Agreement (DTAA) between India and your nation. The agreement would save you from paying tax twice.
You'll still have to report the sale to the Internal Revenue Service (IRS), particularly if you repatriate the proceeds. You'll also have to file an FBAR (Foreign Bank and Financial Accounts Report) if you have more than $10,000 in your foreign account during the year.
Repatriation of Sale Proceeds for NRIs
Repatriation of sale proceeds of property is permitted under the following conditions:
- The property was purchased according to FEMA rules.
- The sale proceeds are credited to your NRO account.
You can repatriate a maximum of $1 million every year, subject to submitting all the required forms (15CA and 15CB).
Important Documents Required for Sale of NRI Property
For selling property in India, make sure you have the following documents:
- Identity Proof: Passport or OCI card
- Address Proof: Indian and present address
- PAN Card
- Title Deed
- Sale Agreement
- Encumbrance Certificate
- Tax Receipts
- Loan Closure Certificate (if applicable)
- POA Document (if applicable)
Selling Indian property as an NRI can mean many steps, particularly with regards to the tax implications and legal requirements. To steer clear of possible complications, it's important to seek the advice of tax experts, financial advisors, and legal professionals in India and in your home country.
Whether you are dealing with TDS, capital gains, or repatriating sale proceeds, expert guidance is the way to go to make the process seamless and maximize your property sale.
FAQs on Selling Property in India for NRIs
1. Can NRIs sell agricultural land in India?
No, NRIs cannot purchase agricultural land in India. If you inherit agricultural land, you can sell it only to a resident Indian
2. What if an NRI sells a property in India?
NRIs are allowed to sell residential or commercial properties. Sale proceeds are subject to TDS, and capital gains tax is applicable based on the holding period.
3. How can NRIs not pay TDS on sale of property?
NRIs can furnish a NIL/lower deduction certificate to minimize TDS deductions. If more TDS is deducted, you can obtain a refund at the time of filing taxes.
4. Where can NRIs credit property sale proceeds?
You may credit the sale proceeds to your NRO account
5. Can NRIs remit sale proceeds abroad?
Yes, up to $1
million each financial year, subject to meeting all regulatory stipulations.
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