TDS, repatriation limits, bank accounts and transaction structures can affect the cost and timing of property deals
Non-Resident Indians (NRIs) buying or selling property in India need to consider tax and foreign exchange rules before completing a transaction, as mistakes can lead to additional costs, delays or penalties.
Under the Foreign Exchange Management Act (FEMA), the way a property was originally funded can affect how sale proceeds are repatriated. NRIs should also ensure that transactions follow the prescribed banking channels and that supporting documents are available.
The choice of bank account is particularly important. Property bought using funds from a Non-Resident External (NRE) or Foreign Currency Non-Resident (FCNR) account can allow the original investment to be repatriated in full, subject to applicable rules. For residential properties, this benefit applies to up to two properties.
Where property is purchased using an NRO account, repatriation of sale proceeds is generally subject to a $1 million annual limit. Transfers above that threshold require approval through the authorised dealer bank. The sale proceeds of Indian property must also be credited to the seller’s NRO account through the prescribed banking route.
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Tax deducted at source (TDS) is another area requiring attention. When an NRI sells property, the buyer is responsible for deducting the applicable TDS
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Under the current long-term capital gains regime, the rate is 12.5%, along with applicable surcharge and cess
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Sellers should verify that the correct deduction is made so that they receive proper tax credit when filing their income tax return
NRIs should also consider currency movements when assessing investment returns. Gains calculated in rupees may look substantially different when converted into dollars or another foreign currency.
Experts further caution against automatically using a sale deed for transfers between close family members. Depending on the circumstances, gift deeds, relinquishment deeds or family settlement deeds may provide more appropriate legal structures and could avoid unnecessary transaction costs.
