Selling property in India as a Non-Resident Indian (NRI) can be a lucrative transaction, but it also comes with its own set of tax implications. For NRIs, Selling property in India tax advice is crucial to understanding the capital gains tax, tax deducted at source (TDS), and other tax requirements to ensure that the process is smooth and legally compliant. This blog outlines the essential tax advice for NRIs selling property in India, covering topics like TDS rates, capital gains, tax exemptions, and the Double Taxation Avoidance Agreement (DTAA).
Understanding Capital Gains Tax on Property Sale
When an NRI sells a property in India, the sale proceeds are subject to capital gains tax. The type of capital gain—short-term or long-term—depends on how long the property was held before selling.
- Short-Term Capital Gains (STCG): If the property is sold within 24 months of acquisition, it is subject to short-term capital gains tax, taxed as per your income tax slab (up to 30%).
- Long-Term Capital Gains (LTCG): If the property is sold after 24 months of acquisition, the gains are classified as long-term. Previously, LTCG was taxed at 20% with indexation benefits, allowing NRIs to adjust the property’s cost for inflation, thereby reducing taxable gains. However, from July 23, 2024, NRIs can no longer claim indexation benefits. The new capital gains tax rate for properties registered on or after this date is a flat 12.5%.
Key Point: It’s important to know the applicable TDS rates when selling property in India to ensure you are deducting the right amount. For properties sold before 2 years, TDS is 30%, and for properties sold after 2 years, it ranges from 13% to 17.81% based on property value.
TDS Requirements for NRIs Selling Property
When an NRI sells property in India, the buyer is responsible for deducting Tax Deducted at Source (TDS) before making the payment. The TDS rate for NRIs selling property ranges from 13% to 17.81%, depending on the property value:
- Properties under ₹50 lakh: 13% TDS
- Properties between ₹50 lakh and ₹1 crore: 14.3% TDS
- Properties between ₹1 crore and ₹2 crore: 14.95% TDS
- Properties between ₹2 crore and ₹5 crore: 16.25% TDS
- Properties above ₹5 crore: 17.81% TDS
Note: NRIs can apply for a Lower TDS Certificate under Section 197 if they qualify for reduced TDS rates. To apply, NRIs must submit Form 13 to the Assessing Officer.
Tax Exemptions and Deductions for NRIs
NRIs can benefit from several exemptions and deductions to reduce their tax liability when selling property in India. Here are some key exemptions to consider:
- Exemption under Section 54
NRIs can claim a tax exemption on long-term capital gains by reinvesting the proceeds into another residential property in India. Key conditions include:
- The new property must be purchased within one year before or two years after the sale of the original property.
- For under-construction properties, completion must occur within three years of the sale.
- If the cost of the new property is less than the capital gains, the remaining amount will still be taxed.
- Exemption under Section 54F
This exemption applies to capital gains from the sale of non-property assets such as land or shares. To qualify:
- Proceeds must be reinvested into a residential property.
- The purchase or construction must follow the same timelines as Section 54 exemptions.
- Exemption under Section 54EC
NRIs can invest the capital gains in government-approved bonds such as those issued by NHAI or REC to claim a tax exemption.
- The investment must be made within six months of the sale.
- The maximum investment limit is ₹50 lakhs per financial year.
- These bonds have a five-year lock-in period, and the interest earned is taxable.
Pro Tip: Make sure to explore exemptions under Sections 54, 54F, and 54EC to minimize your capital gains tax liability and optimize your tax planning strategy.
Repatriation of Sale Proceeds
NRIs selling property in India often wish to repatriate the sale proceeds to their country of residence. It’s crucial to comply with the Foreign Exchange Management Act (FEMA) to ensure that the repatriation process is smooth and legal. For more insights on the process, you can check our detailed guide on NRIs remitting property sale proceeds. Here are a few things NRIs should know:
- Repatriation Limit: NRIs can remit up to USD 1 million per financial year.
- NRO Account Requirement: The sale proceeds should be transferred to an NRO account (Non-Resident Ordinary account) for remittance.
Double Taxation Avoidance Agreement (DTAA)
To avoid being taxed on the same income in both India and the country of residence, NRIs can benefit from the Double Taxation Avoidance Agreement (DTAA) between India and many other countries. To claim DTAA benefits, NRIs must provide:
- Tax Residency Certificate (TRC): This certificate from the country of residence helps establish the NRI’s tax status.
- Claim in ITR: NRIs should submit the TRC and claim the tax credit while filing their Income Tax Return (ITR) in India.
DTAA can help NRIs save significantly on taxes, especially on income such as rental income, dividends, and capital gains.
Income Tax Return (ITR) Filing
NRIs must file an Income Tax Return (ITR) in India for any income earned in India, including property sales. It is mandatory to report the sale proceeds and capital gains in the ITR, even if TDS has already been deducted at source. NRIs must use the appropriate ITR form, such as ITR-2 for property sales.
Failure to file an ITR could lead to penalties and complications, so ensure timely and accurate filing.
Conclusion
Selling property in India as an NRI can be a complex process due to the various tax implications involved. Selling property in India tax advice is essential for understanding capital gains tax, TDS requirements, exemptions, and the repatriation process to ensure compliance and optimize tax outcomes. Seeking professional advice is crucial to navigate the complexities of NRI taxation effectively.
For expert assistance with NRI property transactions and tax planning, contact Brivan Consultants today. Our team of experienced tax professionals can help guide you through the process and ensure your property sale is compliant and efficient.
Frequently Asked Questions (FAQs)
Q1. Can NRIs benefit from Double Taxation Avoidance Agreements (DTAA)?
Yes, NRIs can benefit from Double Taxation Avoidance Agreements (DTAA) between India and their country of residence. These agreements help avoid paying taxes on the same income in both countries, and they provide provisions for reducing or exempting certain taxes.
Q2. Can NRIs claim exemption on capital gains from property sales?
Yes, NRIs can claim exemptions under Sections 54, 54F, and 54EC of the Income Tax Act. These exemptions allow NRIs to reduce their capital gains tax by reinvesting the sale proceeds into residential properties or government-approved bonds.
Q3. Can NRIs repatriate the entire amount from the property sale?
Yes, NRIs can repatriate the sale proceeds to their country of residence. However, FEMA regulations impose a limit of USD 1 million per financial year on repatriation. The proceeds must be transferred through an NRO account.
Q4. Do NRIs need to pay tax on property sales in India?
Yes, NRIs are liable to pay capital gains tax on the profit earned from selling property in India. The tax rate depends on whether the property is sold as a short-term or long-term capital gain.
Q5. Is it mandatory for NRIs to file an ITR after selling property in India?
Yes, it is mandatory for NRIs to file an Income Tax Return (ITR) after selling property in India, regardless of whether TDS has been deducted. This ensures compliance with tax regulations and allows NRIs to claim any tax credits or refunds.
