Property Selling By NRI In India: Requirements & Compliance

Indian Diaspora is constantly expanding around the world. From prominent choice of countries like USA, UK, Canada and Australia to the South East Asian countries like Malayasia, Singapore, Thailand, Vietnam, Myanmar etc.; Indians have made their presence felt through constant migration in search of jobs and better living.

NRIs are like any other human and follow the laws of nature when it comes to their roots back here in India. NRIs tend to invest in their homeland in various forms to keep their roots alive in their hearts. Traditionally, investments are either in form of agricultural land, ancestrol house or some commercial property. With opening up of Real Estate sector in India in early 2000-01, investment in real estate was sorted as the right opportunity by NRIs and significant investments in various new residential and commercial projects were made by NRIs.

Even though the impetus on Real Estate Sector did happen in an organized way, but the managing and selling of these properties is still unorganized and open to plethora of issues on account of mismanagement. Our fellow NRIs who made significant investments in real estate sector face a lot of issues in managing and selling their properties back home in India and look for right kind of guidance and legal advice.

Most of our NRI clients are caught unaware on the various taxation rules and laws on sale of the property by NRIs in India. This is one of the most critical aspects and needs to be dealt diligently to avoid taxation issues.

Taxation On Property Sale By NRI In India

Taxation on proceeds for the sale of property by NRIs is varied under three heads: -

  • Long term capital assets (LTCA), which is when a property is kept on held for more than 24 months. In this case, the capital gain is taxed at 20%.
  • Short term capital assets (STCA), when a property is sold under 24 months. In this scenario, the capital gain is taxable depending upon the tax slab.
  • When an inherited property is sold, cost of acquisition needs to be calculated from the time it was purchased from its original owner.

Capital Gain On Property Sale By NRIs In India

ADVISORY- Capital gains on both LTCA and STCA need to be calculated depending on the sale proceeds, cost of acquisition and inflation.
One can also take tax exemption under Section 54 of the Income Tax Act. Tax exemption available u/s 54 is available only on LTCA, if it’s capital gains are re-invested in some bonds (u/s 54 EC) or residential (U/S 54F) property in India. The property must be self-occupied or let out. It needs to be acquired a year before the sale or two years after the sale of the property. There are a few restrictions and advisories on property and bonds that should be checked in order to avail the tax exemption.

Repatriation Of Funds - Property Sale By NRI

ADVISORY- It should be noted here that India’s Double Taxation Avoidance Agreement with some countries does not offer relief on taxation under capital gains.
The amount taken back from India by an NRI by selling a property should not exceed US $1 Million in one financial year, except prior permission from RBI. If the sold property was an inherited property, then the proceeds will be repatriated by the Non-Resident Ordinary Rupee (NRO) account. There are two kinds of forms that deal with payment outside India and need to be obtained from tax authorities- FORM 15 CB and FORM 15 CA,. Not everyone is required to obtain these forms; but these forms are needed where RBI approval is required, when the amount exceeds 5 lakhs or/and when payment is made to a non-resident. One can always check with the lawyers if an anomaly arises regarding the repatriation.

TDS On Property Sale By NRIs

In case of property sale by NRIs, the buyer has to deduct 20% TDS on the whole sale amount and deposit it with the income tax department. NRI seller can later claim the deducted TDS when he files his income tax return in India. NRI seller can also get a waiver/reduced TDS deduction if he provides a certificate issued by Income Tax Asessing officer for non-deduction or lower tax deduction i.e. for deducting his TDS only on the capital gains. The seller can get a waiver on capital gain tax by re-investing the capital gains in another property or in tax-exemption bonds.

Legal Assistance In Property Sale By NRIs

Our property lawyers provide legal solution to NRIs in:

  • Identification of seller
  • Ensuring that all documents are properly executed and delivered
  • Preparing & evaluating necessary documents to complete a transaction efficiently & effectivley
  • Negotiating, drafting and reviewing sale agreement and other documentation
  • Representation before various authorities such as Revenue Officer, Sub Divisional Magistrate, Registrar, Courts etc.
  • Repatriation advice, tax advice and any other compliance advice