NRIs may face an uphill task while selling property in India due to ignorance and lack of knowledge about Indian tax laws and regulations. Possessing adequate knowledge during an NRI property sale is a must by all means.
Purchasing and selling property in India by NRIs also attracts tax liabilities. Foreign Exchange Management Act (FEMA) 1999 governs the laws regarding the tax implementation for NRIs. The factors that need to be considered are transfer date for determining the capital investment gains, the agreement value for calculating yields and thereby capital gains, transfer charges to the society, legal charges and outstanding loans, if there are any.
TDS on sale of property by NRI
Some of the major aspects worth keeping in mind include the following:
- In case NRIs sell their property/landholding within 2 years from the purchase date, then a short-term capital gains tax is liable for payment at the regular rate. This applies as per the NRI’s existing tax bracket.
- In case the sale takes place post two years from the procurement date, property owners have to fork out capital gains taxes at a flat 20% rate.
- NRIs may repatriate sales proceeds for residential/commercial property within India post selling their estate. However, repatriation is restricted to only two properties.
- The total sum should not exceed cross the amount paid for acquiring the estate in question, either via foreign exchange from banks or Non-Resident accounts.
- This should not also cross foreign currency which is the same as the payment made on a particular date.
Today, the government has made remittance of funds from property sales very simple and hassle-free for the interest of NRIs. The NRIs should ensure that he/she is well guided by a legal counsel in matters of selling real estate in India and must also be aware of fake agents.
Other than TDS, NRIs also enjoy tax exemptions on their capital income from selling property. Here we are listing a few of the exemptions available to an NRI from selling property in India.
Section 54 –
Suppose an NRI sells a residential property post two years from the purchase date and reinvests the amount in another residential property within 2-3 years from the selling date. In this case, the gain that is generated will be exempted up to the new estate’s cost. In case the gains are invested from property sales in India in property in a foreign land then benefits under this section will not be available.
The total exemptions offered is restricted to the capital gains on the sale of the property. In case of property construction over three years, it may be bought 1 or 2 years post the sale.
Section 54EC –
When a long-term asset is sold off, capital gains taxes will be exempted. For instance, this applies in case of a residential property when an NRI is investing the capital profits in REC and NHAI bonds within 6 months from the sale date.
It is possible to redeem these post 5 years. The lock-in period was three years previously. For investing in such bonds, a maximum period of 6 months is allotted for NRIs who must also provide valid investment documents to the buying party in order to ensure non-deduction of TDS.
Section 80C –
NRIs are eligible under section 80C for tax deductions on repayment of principal amount on their home loans. Deductions are also allowed under Section 80C on registration charges and stamp duties.
Section 24 (B)-
NRIs can get exemption on the interest paid on their home loans up to Rs. 2 lakh under Section 24 (B).
Tips to keep in mind for property sales by NRIs
Some of the key points to keep in mind include the following:
- Do your homework properly- You should check the current rates in your locality or neighbourhood for re-selling the property. Do check for the advantages of your property like connectivity, social infrastructure like hospitals, shopping centres and educational institutions and of course, overall safety and security.
- Real estate agents/brokers-You can consider taking help from a real estate agent while selling your property. However, you should be careful with regard to choosing the right one. You should always opt for online real estate platforms which help you purchase property at the right price without hefty brokerage charges.
- Marketing the property- Word of mouth can only go so far as your friends, family and acquaintances. Seek out proper sources for listing your property which includes reputed online real estate platforms. You should always provide all necessary details about your property while listing it.
- Closing the Deal– Once you and the prospective buyer are in agreement about the terms and conditions and also the selling price, you can close the deal smoothly. In case you are not present in India for closing the transaction, you can give a power of attorney in favour of an Indian resident who can act on your behalf. The sale amount will be transferred into your NRO account.
- A non-resident Indian can only sell his/her residential or commercial property in India to a person residing in the country or to another NRI/PIO (Person of Indian Origin).
- Under general conditions, only a person who is a resident of India and is also an Indian citizen can buy agricultural land/plantation property/farm houses from an NRI.
- A non-resident Indian can also transfer his/her residential/commercial property to an authorized real estate agent or housing Finance Corporation in India through the mortgage system.
- Without having received the approval of the Reserve Bank of India (RBI), an NRI cannot through any means transfer by way of mortgage their residential/commercial property in India to any party residing outside India.