Properties sold in India by NRIs are liable for taxation under the Indian income tax laws. An NRI who wants to sell the property situated in India has to pay tax on capital gains. TDS is deducted whenever any property is purchased or sold. TDS on sale of property by NRI depends on the sum of money received. In this article, we will discuss the applicability of TDS on sale of property by NRI in India.
Also Read: Income Tax e-filing: Top 10 NRI Income Tax Filing Benefits
Table of Contents
- Tax implications for NRIs selling property in India
- TDS on sale of property by NRI in India
- How to save tax on capital gains
- FAQs
Tax Implications for NRIs Selling Property in India
Your tax liability on the sale of your property in India will depend on the period of time for which you have held it. If you sell a property that you have owned for more than 2 years, then you will be liable to pay a long term capital gain tax on sale of property. In case a property is held for 2 years or less, the short-term capital gains tax will be applicable.
The date of the purchase of the property by the original owner will be considered for calculating capital gains on an inherited property.
TDS on Sale of Property by NRI in India
NRI TDS rate on sale of property owned by NRIs is 20% as long-term capital gain tax. For properties sold before 2 years, the TDS rate will be as per income tax slab rate of NRI seller.
- The buyer deducts 20% as TDS (Tax Deducted at Source ) as Long-term capital gains tax on the sale of property held for more than 2 years.
- Short-term capital gains tax on the sale of property held for less than 2 years: As per income tax slab of NRI seller
Surcharges and cess would also be charged on the capital gains. Here are the effective rates of TDS on the sale of property by NRI for long-term capital gains.
| Particulars | (A) Long-term capital gains tax | (B) Surcharge on LTCG tax | (C =A + B) Total tax (incl surcharge) | (D) Health & education cess | (C+D) Applicable TDS rate (incl surcharge + cess) |
|---|---|---|---|---|---|
| Sale price < Rs. 50 lakh | 20% | Nil | 20% | 4% of total tax | 20.8% |
| Sale price Rs. 50 lakh to Rs. 1 cr | 20% | 10% of LTCG tax | 22% | 4% of total tax | 22.8% |
| Above Rs. 1 cr | 20% | 15% of LTCG tax | 23% | 4% of total tax | 23.92% |
The maximum surcharge rate on tax payable on dividend income and capital gain mentioned in Section 112 of Income Tax Act, has been capped at 15% as announced in Union Budget 2022.
Hence, regardless of whether the value of property sold by an NRI is Rs. 1 cr or Rs. 5 cr, or even Rs. 10 cr – the rate of TDS will remain the same i.e. 23.92%
In the case of short-term capital gains, surcharge and cess would be added to the applicable tax rate as per your income tax slab in the same manner as in the case of long-term capital gains.
The TDS shall be deducted when any payment is made to the NRI seller for the purchase of property, even if advance is being paid. The TDS shall be deposited by the buyer with the Income Tax Dept.
The TDS on purchase of property from NRI shall be deducted regardless of the transaction value of the property. Even if the price of the property is less than Rs. 50 lakh, the TDS shall be deducted.
How to Save Tax on Capital Gains
NRIs can claim exemptions under Section 54 and Section 54EC on long-term capital gains from the sale of house property in India.
Exemption under Section 54
NRIs can claim exemptions on long-term capital gain on the sale of a house property under Section 54. The exemption is applicable on self-occupied and let-out house property.
To claim this exemption, you can invest the gains for the purchase of property either one year before the sale or 2 years after the sale of your property. You can also use the gains in the construction of a property that must be completed within 3 years from the date of sale.
Only one house property can be purchased or constructed from the capital gains to claim the exemption under Section 54 of Income Tax. It is mandatory that the property is situated in India. The exemption shall not be extended for properties bought or constructed outside India.
Note: If you sell the new property for which you claim exemption within 3 years of its purchase, the exemption can be taken back.
If you could not invest the capital gains until the date of filing of return (usually 31st July) of the financial year in which you sold your property, you can deposit the gains in a PSU bank or other banks. In your return claim this as an exemption from your capital gains, you won’t have to pay tax on it.
Exemption under Section 54F
You have to purchase one house property within one year before the date of transfer or 2 years after the date of transfer to claim exemption under Section 54F. You can also construct one house property within 3 years after the date of transfer of the capital asset.
Note the new house property must be situated in India and should not be sold within 3 years of its purchase or construction.
Capital Gains Bonds for Tax Exemption under Section 54 EC
You can save tax on your long-term capital gains by investing them in capital gains bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC). You can redeem them after 5 years and must sell them before the lapse of 5 years from the date of sale of the house property.
You are allowed a period of 6 months to invest in these bonds. However, to be able to claim exemption, you will have to invest before the income tax return filing date.
Repatriation of Funds
As an NRI, if you wish to repatriate the proceeds from the sale of a property, to your country of residence, you are required to submit Form 15 CA and 15 CB. Form 15 CA ensures that taxes have been collected on the fund before it is repatriated abroad. You can fill out and submit the Form 15 CA yourself. Form 15 CB must be signed and submitted by a competent authority like a chartered accountant. You are allowed to repatriate up to USD 1 million during a financial year outside India.
Also Read: 5 Ways to save on the tax NRIs have to pay
Properties are one of the best NRI investment options in India. However, buying and selling a property is taxed.
Due to a complicated tax system and recurrent amendments, understanding tax laws can be confusing and NRIs may be subject to additional fees or miss claiming deductions and other benefits. At SBNRI, we understand this struggle. You can download SBNRI App to connect with our NRI Tax Experts to know more about new TDS/ TCS rules for NRIs. You will also get end-to-end assistance related to NRI tax filing.
SBNRI will also help you get a lower TDS Certificate. You can also click on the button below to ask any questions. Visit our blog and YouTube Channel for more details.
FAQs
Yes, NRIs can transfer one’s immovable property in India to a resident Indian. The NRI can transfer any immovable property (other than agricultural land or farmhouse) to a citizen of India residing abroad or a PIO cardholder resident outside India.
TDS (Tax Deducted at Source) shall be deducted whenever any property is sold/ purchased. The buyer needs to deduct TDS and pay the balance to the seller. The amount to be deducted depends on the residential status of the seller. In the case of an NRI seller, the amount of TDS to be deducted will depend on the quantum of money received by the seller.
If an NRI is selling property in India, the buyer is required to deduct TDS at the rate of 20% in case of long-term capital gains. However, if the property is sold before two years, TDS shall be deducted at the rate of 30% as a short-term capital gains tax.
– Long-term capital gains on the sale of property held for more than 2 years: 20%
– Short-term capital gains on the sale of property held for less than 2 years: As per the income tax slab rates of the seller
Yes, capital gains tax provisions for an NRI are similar to those for a resident individual except for the applicability of TDS provisions. Like resident investors, capital gains tax for an NRI depends on the holding period and the type of property sold.
