NRI Selling Property in India

In India, Non-Resident Indians (NRIs) sell property for various reasons, including to reap a substantial return, capitalize on opportunities, relocate to a foreign country, liquidate inherited assets, or invest in real estate in India. The whole process of selling a property in India for an NRI can be a little complex in terms of adhering to the regulations set by the Foreign Exchange Management Act FEMA, legal and financial aspects, and more.

However, with proper NRI-specific guidance on property sales in India, NRIs can easily manage the whole process because the real game lies in the documentation and understanding the complex laws.

Types of Properties NRI Can Sell in India

Types of real estate in India that NRIs are permitted to own or sell are as follows:

• Residential properties include apartments, villas, and houses.
• Commercial properties include shops, offices, and warehouses.
• NRIs are not allowed to invest in farmhouses, plantation properties, and agricultural land in India. So if any NRI has such an inherited property in India, they can sell it to an Indian resident.

Restrictions on Selling an Inherited Property in India

As per the Foreign Exchange Management Act, FEMA Section 6(5) provides that the sale proceeds of an inherited property in India cannot be transferred out of India without prior permission from the RBI. So, if any NRI is stuck in such a situation, seeking professional guidance is advisable, so that all the regulatory compliances are taken care of by the expert.

Who is a POA, and Why do NRIs Need One?

One of the most common questions that comes to mind for any NRI would be "what if I cannot come to India to close the sale of the property".Well, in such a case, an NRI can appoint a power of attorney (POA) that will complete all the formalities needed on behalf of an NRI in India.

A POA can be anyone, either your close friend or a family member, who gives his or her consent to act legally on your behalf to approve and make all the decisions.

Ensure that the NRI needs to get the power of attorney (POA) document notarized and attested by their home country's Indian consulate. Once it is done, those documents can be sent to the POA in India. The POA documents also need to be registered and stamped in India within three months of their execution.

TDS on Sale of Property by NRIs

As an NRI, selling a property in India while living abroad can come with some tax implications on the capital gains. An NRI must be aware of he following things before selling their property:

The person who has bought the property will be legally deducting a tax from the sale price and will pay that to the Income Tax Department of India on behalf of the NRI. This is what TDS is, and the TDS rate depends on the type of emergency and the NRIs' residential status.

Tax deducted at source TDS rate on properties that have been held over two years is approximately 12.6% and on properties that are sold after two years, it is 30%. The LTCG TDS differentiates depending on the value of the property, which is as follows:

• Property under Rs 50 Lakhs: 12.5% + 4% cess
• Property between Rs 50 Lakhs to 1 crore: 12.5% + surcharge + 4% cess
• Properties above Rs 1 Cr: 12.5% + surcharge above 1 Cr + 4% cess

A higher surcharge applies on periovetes that are over two crores INR from the financial year 2018 to 2019

• Property over the rate of 2 Cr: 25%
• Property above Rs 5 Cr: 37%

How to Pay TDS on Property Sales by NRIs

The deductor, who also happened to be the buyer of the property, deducts the tax at source from the sale proceeds and transfers it to the deductee, that is, you. Now, the amount that has been deducted is paid to the Income Tax department in India by the deductee.

Know How to Deduct the TDS

The buyer of the property is the one responsible for getting a Tax-Dedication Number (TAN).

Now the buyer of the property, who is also the deductor, will deposit the TDS to the Income Tax Department by the 7th of the following month. He or she can do so by accessing e-pay.

The deductor is then obliged to file Quarterly Form 27Q (TDS return statement).

In return for filing the Form 27Q, the deductor will receive Form 16A, which is a TDS certificate that has he relevant information related to TDS deposits made.

At last, the buyer of the property (deductor) will forward the Form 16A to you. This form will be helpful when claiming a refund of repatriated funds.

Capital Gains

NRIs are obliged to pay taxes on capital gains if they sell the property in India. The tax liability of the property entirely depends on how long the property has been held. There are two types of holding period: long-term and short-term.

When you hold a property for less than five years and more than three years from the date when it is purchased, then it is a long-term gain. The long term capital gains are subject to being taxed at a rate of 12.5% without indexation benefits. Apart from this, taxation also applies in the case of inherited property in India.

The gains are known as short-term capital gains when the property is sold within two years. The gains are known as short-term capital gains and are taxed based on your income tax slab rates. In the short term, capital gains tax implications apply to the case of inheritance as well.

Sections Under Which NRIs Can Save Tax on Capital Gains

As an NRI, you can claim tax exemptions on capital gains under sections 54, 54F, and 54EC from selling property in India.

Tax Exemption Under Section 54

Income Tax Act, section 54 lets you claim tax exemption on long-term capital gains when selling property in India.

Only the capital gains should be invested in tax-exempt investments. Although as an NRI you can purchase a new property at a higher price, the limit of tax exemption is limited to the total capital gains. You can either buy a new property one year before, two years after the sale, or invest in a property that is under construction and will be completed within three years.

According to the budget in 2014-15, you can either buy a house property or construct one using these capital gains. Properties that are outside India are not eligible. Apart from this, the tax exemption on a property will not be valid if you sell a new property within three years.

As an NRI, if you are a non-resident Indian (NRI), you can invest the capital gains by the tax return filing deadline, which is usually July 31st, you can defer the capital gains either in a designated bank under the capital gains account scheme, 1988, or a PSU bank, to delay immediate tax liability.

Tax Exemption Under Section 54F

Under the Income Tax Act, under section 54F, NRIs can claim tax exemption on long-term capital gains by putting in any capital gains on the sale of a non-residential house property.

In order to get this tax exemption, you have to purchase a house property within one year or two years after the transfer date or construct a property within three years of the transfer date. Now, the new house property has to be located in India by law and should be sold within three years of its construction or purchase.

You cannot own more than one house property apart from the new house, and cannot construct or acquire any other residential house within two to three years.

To claim full exemption, invest the entire amount. As per the Income Tax Act, capital gains are fully exempt if you can invest the net sale proceeds. Now, in other cases, the tax exemptions will be proportional to the investments that have been made.

Tax Exemptions Under Section 54EC

Under the Income Tax Act, section 54EC, you can claim tax exemption on long term capital gains by investing in bonds that are issued by entities like the Rural Electrification Corporation (REC), National Highways Authority of India (NHAI), the Power Finance Corporation ( PFC), and the Indian Railways Finance Corporation (IRFC). Considering this, you can invest up to 50 lakhs in one financial year to avoid tax implications.

These specified bonds have a lock-in period of five years, and they can only be sold after the lock-in period is finished, that is, after five years. You need to provide the investment proof to the buyer so that the applicable TDS deductions can be provided. And for the excess tax deducted at source, you can claim a refund during tax filing.

Repatriation of Sale Proceeds Funds for NRIs

Repatriation of the funds from selling property is allowed, except for agricultural land in India, plantation property, or a farmhouse. NRIs can conduct the repatriation of funds if any of the following conditions are met.

The priority was acquired as per the Foreign Exchange Management Act provision or foreign exchange law.

The acquisition of the property was paid in foreign exchange, received either from the funds held in your FCNR, which are foreign currency non-resident accounts, or NRE non-resident external accounts, or banking channels.

In case of residential properties, the repatriation of funds from the sale process is limited to up to two properties.

To repatriate funds for property sale, you need to complete and submit Forms 15CA and 15CB.

NRIS must complete Form 15 CA and submit it individually. Meanwhile, Form 15CB needs to be signed and submitted by a CA.

And lastly, NRIs can repatriate funds up to only $1 million in a year outside India.

Document Checklist for NRIs to Sell Property in India

NRIs need to get the following documents ready to conclude any property sale in India:

• Passport or OCI card for identity proof
• Current and Indian address proof
• NRO bank account
• PAN card
• Sale Agreement
• Title Deed
• Encumbrance Certificate. This certificate shows that the property has no legal dues.
• Tax receipts
• Recent passport-size photograph.
• If any loan was taken to acquire the property, a loan closure certificate is required.
• POA documents if an NRI is selling the property through a POA.

Please note that this isn't an all-inclusive list; the documents may vary based on the type of property you have and the location of the property.

How To Sell Your Property Without Any Hassle

For an NRI selling real estate in India is already a hassle, and if it is a foreign property, the complexities are even greater. Every property has its tax considerations and other factors like the holding period, value of the property, repatriation of funds, and more. One wrong move or deal and it can cost you a fortune.

Hence, for NRIs, it is advisable to consult an expert for deciding what to sell, when to sell, where to sell, and to whom to sell. One such NRI-specific expert is Savetaxs. We have been helping NRIs for more than two decades now in selling their properties in India without any tax complications or hassle. With more than 30 years of professional experience, our legal team and experts help you get all the tax exemptions or refunds you deserve.