Non-Resident Indians (NRIs) often invest in real estate in their home country for various reasons, such as financial security, family ties, or the desire to maintain a connection to their roots. However, when it comes to selling property in India, NRIs must navigate a complex set of rules and regulations. To make this process smoother and more straightforward, it’s essential to be aware of certain key factors. In this blog, we will discuss the five crucial things for NRIs selling property in India.
5 Key Points for NRIs Selling Property in India
1. Understand the TDS on Property Sales by NRI
One of the first things NRIs should note when selling property in India is the tax implications of the transaction. The tax laws in India can be intricate for NRIs when it comes to selling property. Unlike section 194IA of the Income Tax Act where only 1% TDS is charged for resident Indians during sale of immovable property and purview of capital gain is levied further, the cases with NRIs are much different.
Typically, NRIs are subject to a TDS capital gains tax on the profit made from selling the property.
How the TDS on Capital Gains for NRI work?
- In the context of property sales by NRIs, TDS needs to be paid on the sum of money received during the sale proceeds. For example: There are two parties during the sale of property, i.e. buyer and seller. Here, the buyer pays the money to the seller and so he is liable to deduct TDS on the amount and submit it to the Income tax authority. As for the NRI, the TDS deduction will show in his TDS certificate.
- However, the good thing is that they can apply for a Lower TDS Certificate for NRI to avail of TDS Exemption or Lower TDS Certificate. In this case, the NRI won’t have to pay a high tax rate as it will be lowered under the IT Act, 1961.
To speak to an NRI tax expert about TDS on property or get a lower TDS certificate, click on the button below.
2. Inoperative PAN
Your Permanent Account Number (PAN) is a vital document when it comes to property transactions in India. NRIs often face issues with inoperative or inactive PAN cards, which can cause delays and complications during the sale. An active PAN is mandatory to apply for Lower TDS Certificate, in absence of which NRIs will have to bear the brunt of higher TDS rates (ranging from 20% to 30%). NRIs should look to get their inoperative pan changes to operative before going ahead with any such property sale in India.
3. No-Objection Certificate (NOC)
The No Objection Certificate (NOC) is a critical document in the process of selling property in India as an NRI to comply with the Section 21 of the Registration Act of 1908. The procedure for transferring the ownership of land or a property by NRI and residents alike, involves the submission of an application for a land NOC, accompanied by the requisite documentation and associated fees, to the appropriate Circle Office. The NOC certificate will be issued by the Deputy Commissioner. Once the NOC is in the NRI applicant’s possession, they are then eligible to proceed with the property registration and mutation process.
4. Repatriation of Funds
Repatriation refers to the process of transferring the sale proceeds back to your foreign bank account. After the sale of property if the NRI wishes to repatriate the proceeds to their 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.
NRIs who wish to repatriate the proceeds from the sale of property to their country of residence need to follow certain guidelines.
- The property must have been purchased in compliance with FEMA guidelines.
- The amount to be repatriated can’t be more than the original amount paid for the purchase of the property, if the property was bought through foreign exchange remitted via normal banking channels or funds held in an FCNR account.
In the following cases, the NRI seller can repatriate a maximum of USD 1 million per financial year:
- If the property was purchased using balance deposited in the NRO account or funds sourced in India.
- If the property was gifted, the sale proceeds must be credited to the NRO account before repatriation.
- If the property was acquired through inheritance from a resident Indian, funds may be repatriated after the submission of documentary evidence proving the same, an undertaking by the NRI, and a certificate from authorized person like chartered account in the formats prescribed by the CBDT.
- For residential property, repatriation of sale proceeds is restricted to less than or equal to two properties.
- A foreign national can transfer the sale proceeds even if the property was acquired through inheritance from a person outside India. However, he/she must get prior approval of the RBI.
Also read: Repatriation: The Detailed Process for NRIs
5. Saving taxes when selling a property by NRI in India
There are several exemptions under the Income Tax Act that can help the NRIs to save a significant amount of taxes. You can reinvest the profit generated from sale of property for the purchase of another property to benefit from these exemptions. Here are the options that you can avail to save on taxes when selling 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.
- 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 the 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. Note: 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.
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.
Can NRI transfer property in India?
- 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.
What is the TDS on NRI property?
- 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.
How can NRIs avoid paying TDS on property sale?
- 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.
What is the TDS rate on sale of property by NRI?
- 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
Do NRIs pay capital gains tax?
- 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.