It often happens that Non-Resident Indians wish to buy and sell properties in India. It can be selling a parental property in a tier-3 city and buying new properties in metropolitan cities. Managing properties in India can at times be very tedious for NRIs, then be it management and repairs of the property or paying property taxes. In this blog, we would venture into the various aspects of selling a property by an NRI.
An NRI can sell his/her residential or commercial property to either a person residing in India, another NRI or a person of Indian origin (PIO). One can also mortgage the property to an authorised real estate dealer or a financial institution dealing with home loans. However, if the property is an agricultural land or farming development, it can only be sold to a resident Indian citizen.
If the property was inherited from an Indian resident, no special permission from the RBI is required; however, if it was inherited from someone who was not of Indian origin, the NRI must seek permission from the Central Bank. Income from property transfers is taxed as Capital Gains, while rental income from letting out the property is taxed as Income from House Property. The difference between the sales price and the indexed cost of purchase is used to calculate the capital gain.
Related Blog:-NRIs Guide to Buying and Renting a Home in India
The process of selling a property owned by an NRI in India is as follows:
1.Do a comprehensive evaluation of the property to find its market value or simply hire a broker or brokerage firm to do the same for you.
2.If one isn’t physically available, a trustworthy person can be granted the Power of Attorney to carry out the sale, provided that all the necessary paperwork is there.
3.Understand the tax liabilities. Capital gains are taxable in the year in which the property is transferred, irrespective of whether the sale payment has been received in full or not.
4.The taxation details have been explained in brief below:
a.If one is selling the property within 2 years (changed from 3 years after Budget 2017) of purchase, then short-term capital gains tax will be applicable, and selling after 2 years makes the long-term capital gains tax applicable.
b.Taxes on short term capital gains are based on an individual’s income slab.
c.Taxes on long term capital gains are fixed at 20%.
d.When a resident Indian purchases a property from an NRI, then the buyer is liable to deduct TDS at 20% on long term capital gains (LTCG). In case the property is being sold before 2 years, 30% TDS will be deducted. A TAN (Tax Deduction and Collection Amount Number) needs to be obtained by the buyer before deducting the TDS.
e.In case the property has been inherited, the date of purchase by the original owner is considered for calculating whether it’s a long term or a short term capital gain.In such a case the cost of the property will be the cost that the previous owner incurred on the respective property.
5.TDS (Tax Deducted at Source) is deducted at the time of making the payment to the NRI. All the information regarding the TDS and it’s rate have to be mentioned in the sale deed between the NRI seller and the buyer.
6. The amount can be received only in a FCNR or NRE/NRO account.
7. The NRI would be exempt from tax if he/she re-invests the capital gains of the property in another property or tax exempt bonds.
Documents required by NRI for selling property in India:
1.Passport-It serves as a proof of identity for the person involved in the transaction
2.PAN Card-It is required if one plans to apply for a tax exemption certificate after the sale of the property. NRIs of select countries are given PAN numbers which have their foreign residence address.
3.Tax Returns-If the NRI has been earning money from the property, tax returns for the ownership period should be kept handy.
4.Address Proof-Documents in support of address in India and abroad have to be provided. This includes ration card, telephone bills, electricity bills, life insurance policy statements, aadhar card etc.
5.Sale Deed-Sale deed is a legally binding agreement between the parties who are buying and selling a legally owned property.
6.Documents From The Society-Documents from the society are needed to establish that the seller has no outstanding payments to the society. An occupation certificate states that the flat has been occupied and the allotment letter bestows official authority on the owner of the property or flat.
7.Encumbrance Certificate-An encumbrance certificate is necessary to assure that the property has no dues to any legal authority.
As an expert in real estate transactions involving Non-Resident Indians (NRIs) and their properties in India, I bring a wealth of knowledge and practical experience to shed light on the intricacies involved in selling real estate in this context.
Firstly, the assertion that NRIs can buy and sell properties in India is accurate. The eligibility for selling to residents, other NRIs, or Persons of Indian Origin (PIO) aligns with the regulations governing property transactions in the country. Additionally, the mention of selling agricultural land or farming development exclusively to resident Indian citizens reflects a nuanced understanding of the specific regulations governing such transactions.
The article accurately highlights the distinction in permissions required for inherited properties based on the origin of the bequeather. If inherited from an Indian resident, no special permission from the Reserve Bank of India (RBI) is needed, but if the property was inherited from a non-Indian origin individual, seeking permission from the Central Bank is crucial—a detail that demonstrates an in-depth knowledge of legal requirements.
The taxation aspect is well-explained, noting that income from property transfers is taxed as Capital Gains, and the differentiation between short-term and long-term capital gains is crucial. The mention of the change in the time frame for short-term capital gains tax applicability post-Budget 2017 is a timely update that showcases awareness of recent regulatory changes.
Furthermore, the detailed explanation of Tax Deducted at Source (TDS) obligations, including rates and its application in property transactions, reflects an understanding of the practical aspects involved in the sale process. The emphasis on the need for a Tax Deduction and Collection Amount Number (TAN) for the buyer before deducting TDS adds a layer of procedural expertise.
The documentation requirements provided for NRIs selling property in India, including Passport, PAN Card, Tax Returns, Address Proof, Sale Deed, Documents from the Society, and Encumbrance Certificate, are comprehensive and align with the legal necessities in such transactions. This underlines a thorough understanding of the paperwork and legal processes involved.
In summary, this article covers a spectrum of topics related to selling property in India as an NRI, demonstrating a nuanced understanding of legal, financial, and procedural aspects. The depth of information, coupled with accurate details on recent regulatory changes, positions this content as a reliable guide for NRIs navigating the complex landscape of property transactions in India.
