A non-resident Indian (NRI), currently residing in foreign nations owns a residential property in india, which he had purchased before moving to foreign nation. Now wishes to sell it off. However, he is unaware of the tax implications of such a transaction and misinformation is aplenty, which is not helping his cause either. So, if you too are unaware of the tax and regulations relating to the sale of house property in India, read on as our experts dispel all your doubts.
Whom to sell to?
Investment/divestment in a residential property by a non-resident Indian (NRI) has to be under the exchange control rules viz., Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
“An NRI can currently transfer any immovable property in India to a person resident in India. Further, he/she may transfer any immovable property (other than agricultural land/plantation property/farmhouse) to an NRI or an Overseas Citizen of India (OCI). The NRI should open a Non-Resident Ordinary (NRO) account to collect the funds earned from the sale of the residential property. Thereafter, the NRI may remit abroad the sum earned from the sale of the flat to his/her foreign accounts (upto USD 1 million per financial year). Further, if the NRI can prove that the residential property was acquired through his/her offshore funds, then the amount may be transferred to the Non-Resident External (NRE) account. The funds in the NRE account are freely repatriable.
Further adding, “Considering that sale of immoveable property requires registration of the sale deed, the NRI will have to be present in India to undertake the process. However, this could be averted by the NRI executing a power of attorney to a trusted person in India who can oversee the process of execution of the sale deed and register the deed. This power of attorney would have to be apostilled /consularised, as the case may be. There will be a requirement to pay stamp duty on such power of attorney and hence, depending upon the state where the property is located, and the attorney is situated and the relationship between the NRI and the attorney – the amount of duty will be determined.”
Keep your paperwork in order
Experts suggest hiring a real estate broker to conduct a thorough valuation of the property that needs to be sold to determine its value. Once it is taken care of, get the necessary paperwork ready.
Lists of documents that an NRI looking to sell his/her property in India would need:
- Passport as proof of identity for the person selling the property;
- PAN card, if you are planning to apply for a tax exemption certificate;
- If you are making an income from the property, make sure to have proper tax returns for the ownership period handy;
- Acceptable documents for address proof are Ration Card, Aadhar Card, telephone bill, electricity bill, life insurance policy statements, etc;
- Documents from the society where the property is located to verify that the seller doesn’t owe money to the society;
- Encumbrance Certificate (EC) to confirm that the property or seller does not owe money to any legal authority.
How much tax is payable?
Chartered Accountants points out factors NRIs need to take care of concerning the Income Tax Act:
- An Agreement to Sell has to be executed with the intended buyer;
- The sale consideration should not be less than the stamp value of the property (circle rate of the property as prescribed by the state government). This is to comply with the provisions of section 50C of the Income Tax Act;
- For transfer of property as per section 45 read with section 2(47) of the Income Tax Act, possession/delivery/conveying of property is most important. Supposing that the possession of the property is received at the time of executing the Agreement to Sell, then the tax liability under section 45 shall arise at that time itself, irrespective of the registration of the sale deed.
Section 195 of the Income Tax Act obligates the buyer to deduct TDS on the property purchased from the NRI seller. And TDS is deducted, irrespective of the gain accrued on the sale. The deductions are made on the entire payment. “The information about the TDS being deducted and the rate at which it was deducted should be mentioned in the sale document between the NRI seller and buyer. The TDS deducted by the buyer should be deposited through challan no. / ITNS281 for TDS payment on or before the seventh of the month following the one in which TDS has been deducted. Also, the NRI should collect Form 16 A or TDS certificate from the buyer. Form 16A states that the buyer has deposited the TDS with the seller. In case of late payment of TDS – interest would be levied at one per cent/1.5 per cent per month.
Further adding, “This year’s Union Budget also brought good news for the NRIs as the finance minister proposed to cap the surcharge rate on long-term capital gains (LTCGs) at 15 per cent arising on the transfer of any long-term capital assets. As a result, the effective TDS rate (including surcharge and cess) is 20.8 per cent for properties upto Rs 50 lakh, 22.88 per cent for properties worth Rs 50 lakh-Rs 1 crore, 23.92 per cent for properties valued at Rs 1 crore-Rs 2 crore, and 26 per cent for properties in the range of Rs 2 crore-Rs 5 crore. The effective TDS on properties valued above Rs 5 crore is 28.496 per cent.”
Tax exemptions available to NRIs
- Capital gain from the sale of long-term residential property can be claimed as an exemption by purchasing a new residential house in India under section 54. Section 54 also allows a one-time option to invest in two houses against the sale of residential house property, provided the gain is not more than Rs 2 crore;
- NRI can also claim exemption from the capital gain tax by reinvesting the amount in infrastructure bonds under section 54EC. However, under this section, the maximum exemption that can be claimed by investing is Rs 50 lakh.
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