NRI’s Guide to Selling Property in India

Hey NRI, are you thinking of selling your real estate in India? Worried about how to deal with the operational and regulatory compliances? Well, don't worry. It's not all that daunting, but it requires some effort.

Selling real estate is quite similar to that of resident Indians. A couple of extra documents is all you need.

Here's a blog taking you through the nitty gritty of selling your property in India. But before we get to how to sell, let's first see what kind of properties you can sell in India and to whom.

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What Properties Can NRIs Sell in India?

You can sell your residential or commercial property in India to either a resident Indian or another NRI or PIO (Person of Indian Origin). Alternatively, you can also mortgage the property to a real estate dealer or financial institution.

You are not allowed to invest in agricultural lands, farmhouses, or plantation properties. Thus, any such property that you inherit can only be sold to resident Indians.

Most inherited properties have no restrictions on property sales. However, there are certain restrictions when it comes to selling property inherited from a person who is not of Indian origin.

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Restrictions around selling inherited property in India

Selling inherited property in India can follow the standard process applicable to any other NRI. Having said that, there could be additional regulations concerning the repatriation of funds.

According to the Foreign Exchange Management Act (FEMA) Section 6(5), the proceeds from the sale of inherited property cannot be taken out of India without the permission of the Reserve Bank of India (RBI). If you find yourself in this situation, it is advisable to seek professional guidance to navigate the regulatory requirements effectively.

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How Can NRIs Sell their Property in India?

The most common question that comes to mind is, 'What if I'm unable to be in India to close the sale?' Well, the answer is pretty simple: you can appoint a Power of Attorney (POA).

You can either sell your property in India while staying abroad (through POA) or when you visit India.

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How do NRIs appoint a POA?

A POA can be a close family member or friend who can legally act on your behalf to conclude any sale transactions.

You need to get the POA document notarized and attested by the Indian consulate of your country of residence and then send it to the POA in India.

The POA document should also be stamped and registered in India within three months of its execution.

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TDS on Sale of Property by NRIs

Selling a property in India while living in the US can have tax implications on the capital gains. You need to be aware of the following before you sell your property:

The buyer of your property will deduct a certain percentage of the sale price and pay it to the Income Tax Department in India on your behalf. The TDS rate depends on the property's type and value and your residential status.

TDS for properties held over two years is 12.5%, and for properties sold within two years, it is 30%. The LTCG TDS rates vary based on the property value and are as follows (including surcharge and cess):

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• Properties under Rs 50 lakh: 12.5% + 4% cess

• Properties between Rs 50 lakh and Rs 1 crore: 12.5% + surcharge + 4% cess

• Properties above Rs 1 crore: 12.5% + surcharge above 1 cr + 4% cess

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From FY 2018-19, a higher surcharge applies to properties above INR 2 crore:

• Properties above Rs 2 crore: 25%

• Properties above Rs 5 crore: 37%

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How to pay TDS on Sale of Property by NRIs

Tax Deducted at Source (TDS) is an amount the deductor withholds before transferring sale proceeds to the deductee (you). The deducted sum is duly paid to the income tax department of India by the deductee.

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The following is the process for deducting TDS on the sale of property,

• Step 1: The deductor (the buyer of your property) is responsible for obtaining a Tax-deduction Account Number (TAN) 

• Step 2: The deductor has to deposit the TDS to the income tax department by the 7th of the following month by accessing e-pay.
• Step 3: The deductor has to file quarterly Form-27Q (TDS return statement)
• Step 4: Next, the deductor receives Form 16A (TDS certificate), which includes information related to TDS deposits made.
• Step 5: Lastly, the deductor forwards the Form 16A to you, which is helpful during the repatriation of funds or claiming of refund.

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Capital Gains

You must pay capital gains tax if you sell your property in India. The tax liability for these gains depends on the asset holding period - short-term or long-term capital gains.

If you sell the property after holding it for a period of 2 years (earlier 3 years) from the date of ownership, it is considered a long-term capital gain. Longer-term capital gains are taxable at 12.5% without indexation benefit.

If you sell the property within 2 years, the gains are considered to be short-term capital gains. The short-term gains are taxed based on your applicable income tax slab rates. This is determined by the total income that is taxable in India.

The tax implications also apply in cases of inheritance.

If you inherit a property, the date of purchase by the original owner determines whether it constitutes a long-term or short-term capital gain. In such scenarios, the cost of the property is considered to be the cost to the previous owner.

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How NRIs can Save Tax on Capital Gains?

You can claim exemptions under sections 54, 54F, and 54EC for long-term capital gains from selling property in India.

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Exemption under Section 54

Under Section 54 of the Income Tax Act, you can claim an exemption on long-term capital gains when selling a house property.

Only the capital gains must be invested for tax exemption. While you can purchase a new property at a higher price, the exemption is limited to the total capital gains. You can buy a new property one year before or two years after the sale or invest in an under-construction property that will be completed within three years.

As per the 2014-15 budget, you can only buy one house property or construct one using these capital gains. Properties outside India are not eligible. Also, the tax exemption will not be valid if you sell the new property within three years.

If, in any case, you are unable to invest the capital gains by the tax return filing deadline (usually July 31st), you can deposit the gains in a PSU bank or designated banks under the Capital Gains Account Scheme, 1988, to defer the immediate tax liability.

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Exemption under Section 54F

Under Section 54F of the Income Tax Act, you can claim an exemption on long-term capital gains from selling any capital asset except a residential house property.

To qualify for this exemption, you must purchase a house property within one year before or two years after the transfer date or construct one within three years after the transfer. The new house property must be located in India and should not be sold within three years of its purchase or construction.

You should not own more than one house property in addition to the new house and should not acquire or construct any other residential house within two or three years, respectively.

You can invest the entire amount to claim a full exemption. The capital gains are fully exempt if you invest the entire sale receipt. In other cases, the exemption will be proportional to the investment made.

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Exemption under Section 54EC

Under Section 54EC, you can save tax on long-term capital gains by investing in specified bonds issued by entities like the National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), Power Finance Corporation (PFC), and Indian Railways Finance Corporation (IRFC). You can invest up to Rs 50 lakhs in a financial year to avoid capital gains taxation.

 These bonds have a lock-in period of five years (previously three years) and can only be sold after five years. You can provide the investment proof to the buyer to avoid a TDS deduction. For any excess TDS, you can claim a refund during tax filing.

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What are the Tax Implications in Your Country of Residence?

Let's say you are staying in the United States of America and selling your real estate property in India. Since India and the US have a double taxation treaty in place. You don't have to worry about paying taxes in both countries.

 However, you may still need to report the sale to the Internal Revenue Service (IRS) even if you don’t have to pay any additional tax.

 Also, if you hold any sum equivalent to or more than $10,000 in an overseas account at any point in the calendar year, you may need to submit an IRS Report of Foreign Bank and Financial Accounts (FBAR).

 If you repatriate the profits from the property sale, you must report this transfer using IRS Form 3520.

 Every country will have different regulations, and it's best to consult a tax expert before proceeding with any transaction.

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Repatriation of Property Sale Funds for NRIs

Repatriation of the sale proceeds from selling a property (other than agricultural land, farmhouse or plantation property) is allowed if any of the following conditions are met:

 The property was acquired as per the FEMA provision or foreign exchange law.

 The property acquisition amount was paid in foreign exchange received through banking

channels or from the funds held in Non-Resident External (NRE) or Foreign Currency Non-Resident (FCNR) accounts.

 For residential properties, repatriation of sale proceeds is restricted to two properties. 

 To repatriate property sale proceeds, you must complete and submit Forms 15CA and 15CB.

 You must individually fill out Form 15CA and submit it. Meanwhile, Form 15CB needs to be signed and submitted by a chartered accountant.

 Also, you can repatriate up to $1 million annually outside India.

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Documents for NRIs Selling Property in India

For an easy sale, you need to get your paperwork sorted. Here’s the list of documents that you’ll need to conclude your property sale in India:

Identity Proof: Passport or OCI card

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1. Address Proof: Indian address proof and current address proof

2. NRO Bank Account

3. PAN Card

4. Title Deed

5. Sale Agreement

6. Encumbrance Certificate (a certificate showing the property has no legal dues).

7. Tax receipts

8. Passport size photo

9. Loan closure certificate if you had taken a loan to acquire the property.

10. POA document if you are selling through a POA.

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Note that this isn't an exhaustive list; the documents required may vary based on the type of property and its location.

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Conclusion

Selling real estate has tax implications, and dealing with a foreign property may add some complexity. Since each sale is distinct, the associated tax considerations and other factors may vary. Factors like determining the property value, holding period and reinvestment or repatriation of funds play an important role in selling a property.

 Therefore, it’s best for you to consult with an expert before deciding when to sell. This ultimately helps you explore potential tax remedies and reduce transaction costs.

 Given the involvement of different authorities, we recommend you speak to an investment advisor (like iNRI) and chartered accountant in India and also get some guidance from a financial and tax advisor in your country of residence.

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NRIs Selling Real Estate in India: Frequently Asked Questions (FAQs)

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Can an NRI sell agricultural land in India?

You cannot purchase agricultural land in India. However, if you acquired it before the change in your residential status or inherited agricultural property, you can only sell it to an Indian resident.

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What happens if NRI sells property in India?

You can sell your residential or commercial properties in India. The sale proceeds attract TDS, and capital gains attract short or long-term capital gains, depending on your holding period. Also, you can repatriate these proceeds to your home country.

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How can NRI avoid TDS on property sales?

When buying a property from you, the buyer deducts TDS at applicable rates before transferring the amount. However, if you submit a NIL/lower deduction certificate, the buyer will deduct the TDS at the lower rate specified in the certificate.

When the TDS exceeds your tax liability, you can get a NIL/lower deduction certificate from the Income Tax Department. You must get the certificate before executing the property sale agreement.

The assessing officer calculates TDS based on capital gains, and if TDS is higher than the tax liability without the certificate, then you can claim a refund while filing taxes.

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To which account can NRIs credit the property sale proceeds?

You can credit the property sale proceeds to your Non-Resident Ordinary (NRO) account.

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Can the sale proceeds from a property purchased as a resident Indian be remitted abroad?

Yes, you can remit the sale proceeds to your country of residence, provided the amount does not exceed $1 million in a financial year.

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