Tax implications for Non-Resident Indians(NRIs)

Tax implications for NRIs who want to sell property in India

• NRIs who have sold house property which is situated in India have to pay tax on the Capital Gains.
• The tax that is payable on the gains depends on whether it’s a short term or a long term capital gains.
  • When a house property is sold, after a period of 3 years from the date it was owned – there is a long term capital gain.
  • If it held for 3 years or less – there is a short term capital gain.
• In case the property has been inherited, remember to consider the date of purchase of the original owner for calculating whether it’s a long term or a short term capital gain. In such a case the cost of the property shall be the cost to the previous owner.

How much tax is payable?

• Long term capital gains are taxed at 20% and short term gains shall be taxed at the applicable income tax slab rates for the NRI based on the total income which is taxable in India for the NRI.

TDS?

• When an NRI sells property, the buyer is liable to deduct TDS @ 20%. In case the property has been sold before 3 years from the date of purchase a TDS of 30% shall be applicable.

How to save tax on capital gains?

• NRIs are allowed to claim exemptions under section 54 and Section 54EC on long term capital gains from sale of house property in India.

Exemption under section 54

• Section 54 Exemption is available when there is a long term capital gain on sale of a house property of the NRI.
• The house property may be self occupied or let out. Please note – you do not have to invest the entire sale receipt, but your purchase price of the new property may be higher than the amount of capital gains,
• However your exemption shall be limited to the total capital gain on sale.
• Also, you can purchase this property either one year before the sale or 2 years after the sale of your property.
• You are also allowed to invest the gains in the construction of a property, but construction must be completed within 3 years from the date of sale.
• In the Budget for 2014-15, it has been clarified that only ONE house property can be purchased or constructed from the capital gains to claim this exemption. Also starting assessment year 2015-16. it is mandatory that this new house property must be situated in India.
• The exemption under section 54 shall not be available for properties bought or constructed outside India to claim this exemption.
• it is to be be remember that, Exemption U/s 54 can be taken back if you sell this new property within 3 years of its purchase.
• If you have not been able to invest your capital gains until the date of filing of return (usually 31^st July) of the financial year in which you have sold your property,
• you are allowed to deposit your gains in a PSU bank or other banks as per the Capital Gains Account Scheme, 1988. And in your return claim this as an exemption from your capital gains then you don’t have to pay tax on it.

Exemption under section 54F

• Section 54F Exemption is available when there is a long term capital gain on the sale of any capital asset other than a residential house property.
• To claim this exemption, the NRI has to purchase one house property within one year before the date of transfer or 2 years after the date of transfer or construct one house property within 3 years after the date of transfer of the capital asset.
• This new house property must be situated in India and should not be sold within 3 years of its purchase or construction. Also, the NRI should not own more than one house property and nor should the NRI purchase within a period of 2 years or construct within a period of 3 years any other residential house.
• Here the entire sale receipts are required to be invested. If the entire sale receipts are invested then the capital gains are fully exempt otherwise the exemption is allowed proportionately.

Exemption is also available under Section 54EC

• you can save the tax on your long term capital gains by investing them in certain bonds. Bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) have been specified for this purpose.
• These are redeemable after 3 years and must not be sold before the lapse of 3 years from the date of sale of the house property.
• Note that you cannot claim this investment under any other deduction. You are allowed a period of 6 months to invest in these bonds – though to be able to claim this exemption,
• You will have to invest before the return filing date. The Budget for 2014 has specified that you are allowed to invest a maximum of Rs 50lakhs in a financial year in these bonds.
• Non Resident Indian must make these investments and show relevant proofs to the Buyer – to make sure TDS is not deducted on the capital gains.
• NRI can also claim excess TDS deducted at the time of return filing and claim a refund.

NRI Selling Property in India

• In comparison to an Indian Resident selling a property in India, an NRI must go through a various of procedures. which may result that it is critical to take the required steps before selling your residential or commercial property in India
• A big Question come in our mind that, How will avoid such big Tax deductions while making a profit on your property sale?
• we should be keep in mind that, a blunder may arise which can result in double taxes on that also well other legal concerns. which result that it is always advisable to get the advice of a qualified consultant before proceeding with regarding to Selling NRI Property procedure.
• This can also save you time and assist you in resolving your property issues without requiring any effort on your part.

RJA is a one-stop solution that provides you with a complete & accurate NRI real estate solution package.

• A flowchart depicting the steps involved in an NRI selling property in India is shown below. When selling a property, every NRI must go through these essential steps. Let’s get started.

Finding a buyer:

• The most important duty when selling a property is to find a buyer. An NRI may only sell his or her property to an Indian, another NRI, or a Person of Indian Origin (PIO).
• A property owned by an NRI cannot be sold to a foreigner. Only an Indian can buy the agricultural property or a farm from an NRI who has obtained authorization from the RBI.

Agreement to Sell:

• The next step is to sign a sale agreement; What are the most important documents you’ll need to complete your agreement?

Documents pertaining to the acquisition cost:

You must submit documentation pertaining to the property’s initial purchase price, such as a registered sale deed for the acquisition of the property.

· Documents pertaining to improvement costs: Documents such as bills, invoices, and bank statements would be required for improvements or renovations to the existing property. This will be added to the cost and then indexed.

· Certificate of Valuation: If the property to be sold was purchased, acquired, or inherited prior to April 1, 2001, a Valuation Certificate from a certified valuer is required to assets the Cost of the property for Capital Gains purposes.

· PAN (Personal Identification Number): An NRI selling property in India must have a PAN Number, which must be produced at the time of document verification.

· A passport is required: As proof of identity, an NRI should present his passport. He could be an Indian or a citizen of another country.

Aside from this, many other legal documents must be produced during the process, but these are the main documents that an NRI must submit.

Certificate for a Lower Tax Deduction:

• When an NRI sells a property in India, the buyer must deduct TDS at a rate of 20% (plus relevant cess and surcharge) from the transaction price.
• They can apply for LTC (lower tax deduction certificate) based on the intended buyer’s Agreement of Sale to avoid the higher tax rates.

Transfer of cash from buyer to seller and TAN Number:

• Buyer pays the advance and transfers the funds to the seller once the agreement is finalised. In this scenario, the TAN number should be kept on hand by the customer (TDS & TCS Number).
• The buyer is only eligible to deduct TDS or tax at source if he holds a TAN Number.

More read: F&Q on NRI Income Tax Compliance (Help Centre)

Property Registration:

• The process of legally transferring your property rights to the buyer is known as registration. It must be legally registered at the office of the sub-registrar.

Filing of TDS and Income tax returns:

• Specific income is taxed in one of the two nations and exempted in the other, according to the exemption mechanism.
• The income is taxed jointly with the countries listed in the income tax treaty when using the tax credit method.
• If you are an NRI living in Australia or the United States, you can take advantage of a special offer when you use RJA – NRI Taxation’s tax services.
• By signing a double taxation avoidance agreement, you can avoid paying tax twice. This can be accomplished in 2 ways: one through exemption and the other through tax credit.
  • Exemption Technique: The exemption method taxes specific income in one of the two nations while exempting it in the other.
  • Tax Credit Method: The income is taxed jointly with the countries listed in the income tax treaty under the tax credit method.
• If you are an NRI living in Australia or the United States, you can take advantage of a special offer when you use RJA – NRI Taxation’s tax services.

More read:Key Provision for NRI Taxation

TDS and income tax returns must be filed:

• When selling property in India, the seller must file an income tax return after the end of the fiscal year, i.e. after March 31st.
• TDS returns must also be filed by the buyer of property in order for the seller’s tax deduction to be claimed at the time of income tax filing.
• If the seller is a foreign resident, he must disclose the sale in that country and claim credit for taxes paid in India.

Repatriation- Liberalized Remittance Scheme

• The conversion of foreign currency to one’s domestic currency is referred to as repatriation. Once the property is sold and the money is transferred to your NRO account,
• you can use repatriation and remittance of funds as defined by the RBI to transfer the funds to your local bank account abroad.
• Under the “Liberalized Remittance Scheme,” the RBI has set certain limits on the amount of currency that can be transferred from India to abroad.
• Liberalised remittance scheme with effect from FY 2004 allows for a transfer of USD 2,50,000 per FY.

Rajput Jain & Associates, Chartered Accountants recognise the value of your time and are highly responsible when it comes to tax matters, ensuring that you receive the best advice possible in a timely manner.

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