For an NRI, it is a time-consuming exercise for selling a property in India with legal, tax, and financial consequences. Be it selling an asset or transfer of ownership, you need to know about the consequences of selling your property so that the maximum possible returns and the process are efficiently done. In this blog, we will walk you through the most crucial things to know before selling your property in India as an NRI.
Understand Tax Implications
Sale of property owned in India is taxable, and for NRIs the implications are just a bit different than residents. The major tax to keep in mind is:
Capital Gains Tax: The gain received on sale of property is taxable as capital gains tax, short-term or long-term depending on the holding period.
Short-Term Capital Gains (STCG): If you are selling the property after two years of buying, the gain is a short-term gain and is taxed at your marginal rate of income tax depending on your overall income.
Long-Term Capital Gains (LTCG): If you are selling the property after two years or more, the gain is taxed as long-term capital gains at a uniform rate of 20% with the benefit of indexation.
Tip: Avoid tax on long-term gains by availing of indexation.
TDS (Tax Deducted at Source): While selling a property, an NRI should ensure that the buyer deducts TDS 20% if it is a long-term or 30% if it is a short-term. If the TDS is more than your tax liability, you can recover refund by filing return of income in India.
Repatriation of Sale Proceeds
If you are an NRI and need to repatriate sale proceeds of a property in India to your native country, then there are certain conditions that need to be followed by you:
Repatriation restrictions: You can repatriate a maximum of USD 1 million per year of finance, together with all other amounts.
NRO to NRE Transfer: The amount has to be credited first to an NRO (Non-Resident Ordinary) account and sale proceeds of up to two residential properties can be remitted from NRO to NRE (Non-Resident External) account for repatriation.
Supporting Documents: You are required to provide supporting documents like the sale deed, payment receipts in respect of taxes, and a certificate issued by a chartered accountant that the repatriation amount.
Legal Documents and Compliance
Obey all the legal documents and laws prior to selling Indian property so that you do not face any trouble later on:
Title Verification: Ensure that you possess a clear title of the property. Any confusion or doubt regarding the ownership may delay or kill the process of sale.
Power of Attorney (PoA): As an NRI settled abroad from India, you may need to appoint someone in India to finalize the sale process on your behalf under a Power of Attorney. Get the PoA properly attested and notarized and get it attested by the Indian consulate in your foreign country.
No Objection Certificate (NOC): If required, obtain a NOC from the housing society or the municipal corporation of the locality to establish that there are no objections to selling the property.
Market Conditions and Property Valuation
You need to time your property sale to obtain the highest returns. Keep in mind the following points:
Market Trends Now: Property prices vary with demand and supply, local infrastructure projects, and overall economic condition. Monitor local real estate trends in the area where your property is situated.
Proper Valuation of Property: Engage a certified valuer or real estate expert to determine your property’s value. In doing so, you are able to provide the proper price to the property and attract suitable buyers.
Improvement of Property: Refurbishing or bettering your property in minor aspects can be profitable in its value and wider attraction to potential buyers.
Double Taxation Avoidance Agreement (DTAA)
If you are from a nation that has a Double Taxation Avoidance Agreement (DTAA) with India, the provisions of such an agreement would be in your favor and would allow you to save tax twice on the same income.
Tax Relief Claim: Tax credits on tax paid in India while selling property but you pay tax in your home country.
Tax Residency Certificate (TRC): In order to avail relief under DTAA, you would be required to submit a Tax Residency Certificate (TRC) from the tax resident country.
Conclusion
Sale of property in India by NRI encompasses working with tax provisions, repatriation regulations, and issues of law. Making sure that you are in compliance with all the rules and regulations and are cognizant of your tax implications will enable you to derive the maximum out of your returns without having to go through any unnecessary hassles. For professional assistance in managing sales of property, taxes, and repatriation, you may approach Prime Wealth, an NRI financial services company. They will take you through the intricacies of real estate transactions and create customized solutions to suit your financial requirements.
FAQs
- What is the capital gains tax rate for NRIs selling property in India?
Ans – Long-term capital gains are taxed at 20% with indexation benefits, while short-term capital gains are taxed at the applicable income tax rate. - How much TDS is deducted when an NRI sells property in India?
Ans – TDS is deducted at 20% for long-term capital gains and 30% for short-term capital gains. - Can NRIs repatriate the proceeds from selling property in India?
Ans – Yes, NRIs can repatriate up to USD 1 million per financial year, subject to certain conditions and documentation. - Do I need a Power of Attorney (PoA) to sell my property in India as an NRI?
Ans – If you are not physically present in India, you may need to appoint a trusted person through a PoA to handle the sale on your behalf. - How can I avoid paying double taxes on the sale of property in India?
Ans – If your country has a DTAA with India, you can claim tax credits for the taxes paid in India to avoid double taxation. - What documents are required to repatriate the sale proceeds?
Ans – You will need the sale deed, tax payment receipts, and a certificate from a chartered accountant to repatriate the sale proceeds. - Can NRIs sell commercial property in India?
Ans – Yes, NRIs can sell both residential and commercial properties in India, subject to the applicable tax and legal requirements. - What is the benefit of indexation on long-term capital gains?
Ans – Indexation adjusts the purchase price of the property for inflation, reducing the taxable gains and lowering your tax liability. - How do I determine the market value of my property before selling?
Ans – You can hire a professional valuer or consult a real estate agent to get an accurate assessment of your property’s market value. - What happens if there are ownership disputes on the property?
Ans – Any disputes over the ownership of the property can delay or complicate the sale process. Ensure that the title is clear before proceeding with the sale.
Disclaimer: The information provided here is for educational and informational purposes only and should not be construed as financial, legal, or tax advice. Consult with a qualified professional before making any investment decisions. We do not accept any liability for errors or omissions in this information nor any direct, indirect, or consequential losses arising from its use.
