Selling property in India can be a lucrative opportunity for Non-Resident Indians (NRIs), but it also comes with various tax implications that need careful attention. Proper selling property in India tax advice is essential to understand capital gains tax, TDS requirements, exemptions, and repatriation rules to ensure a smooth and compliant transaction. This blog provides key tax advice for NRIs selling property in India, including details on TDS rates, capital gains, available exemptions, and the Double Taxation Avoidance Agreement (DTAA).
Understanding Capital Gains Tax on Property Sale
When an NRI sells 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. 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%.
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:
- 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.
Exemption under Section 54F
- This exemption applies to capital gains from the sale of non-property assets such as land or shares.Key Conditions:
- The proceeds must be reinvested into a residential property.
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.Key Conditions:
- The maximum investment limit is ₹50 lakhs per financial year.
- These bonds have a five-year lock-in period.
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.
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.
DTAA & Filing Income Tax Return (ITR)
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 helps establish the NRI’s tax status in their country of residence.
- Claim in ITR: NRIs should submit the TRC and claim the tax credit while filing their Income Tax Return (ITR) in India.
Note: Even if TDS is deducted, NRIs must file an ITR to report the sale proceeds and claim any tax refunds.
Conclusion
Navigating the tax landscape when selling property in India can be complex for NRIs. Expert selling property in India tax advice helps you optimize your tax liabilities, claim exemptions correctly, and comply with all regulatory requirements, making your property sale hassle-free and financially beneficial. NRI Edge offers expert assistance to help NRIs navigate the complexities of property sales and tax planning effectively.
Frequently Asked Questions (FAQs)
Q1. Can NRIs benefit from Double Taxation Avoidance Agreements (DTAA)?
Yes, NRIs can benefit from DTAA between India and their country of residence, which helps avoid paying taxes on the same income in both countries.
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 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, subject to FEMA regulations with a limit of USD 1 million per financial year.
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, NRIs must file an Income Tax Return (ITR) after selling property in India, even if TDS has been deducted. This ensures compliance with tax regulations and allows NRIs to claim any tax credits or refunds.
