Are you an NRI contemplating the sale of your property in India? The operational and regulatory requirements might seem daunting, but with the right guidance, the process can be straightforward. Here’s a detailed guide to help you through the process:
Types of Properties NRIs Can Sell in India
NRIs can sell both residential and commercial properties in India to resident Indians, other NRIs, or Persons of Indian Origin (PIO). However, investments in agricultural land, farmhouses, or plantation properties are prohibited, and such properties can only be sold to resident Indians.
Inherited properties generally come with fewer restrictions, except when inherited from a non-Indian origin person, which may involve additional regulatory considerations.
Restrictions on Selling Inherited Property
Selling inherited property usually follows the standard process for NRIs, but there are specific regulations regarding the repatriation of funds. According to the Foreign Exchange Management Act (FEMA) Section 6(5), you cannot repatriate the proceeds from the sale of inherited property without Reserve Bank of India (RBI) permission. Professional guidance is recommended to navigate these regulatory requirements.
Selling Property: Process and Documentation
If you are unable to be in India to complete the sale, you can appoint a Power of Attorney (POA). A POA can be a close family member or friend who acts on your behalf. The POA document must be notarized and attested by the Indian consulate in your country of residence and registered in India within three months.
Here’s a list of documents you will need to sell your property:
Identity Proof (Passport or OCI card)
Address Proof (both Indian and current)
NRO Bank Account
PAN Card
Title Deed
Sale Agreement
Encumbrance Certificate
Tax Receipts
Passport-size Photo
Loan Closure Certificate (if applicable)
POA Document (if selling through a POA)
Tax Implications of Selling Property
NRIs selling property in India face specific tax implications, particularly related to capital gains and Tax Deducted at Source (TDS).
Selling property in India involves various tax implications and regulatory requirements. Consulting with experts—investment advisors, chartered accountants in India, and financial advisors in your country of residence—can help you navigate the process efficiently and explore potential tax-saving strategies
TDS: The buyer deducts TDS from the sale price and pays it to the Income Tax Department. The TDS rate depends on the property’s holding period and value.
Properties held for over two years: 20%
Properties sold within two years: 30%
Additional surcharges for properties above certain thresholds.
Capital Gains Tax:
Long-term (held for more than 2 years): Taxed at 20%
Short-term (held for less than 2 years): Taxed based on the income tax slab rate
The tax implications also apply to inherited properties, with the original owner’s purchase date determining the holding period.
Saving on Capital Gains Tax
NRIs can claim exemptions on long-term capital gains under Sections 54, 54F, and 54EC of the Income Tax Act:
Section 54: Exemption on capital gains from selling a house property if reinvested in another residential property within specified timelines.
Section 54F: Exemption on capital gains from any asset except residential property if reinvested in a residential property within specified timelines.
Section 54EC: Exemption by investing in specified bonds, with a limit of Rs 50 lakhs per financial year.
Tax Implications in the Country of Residence
Countries like the US have double taxation treaties with India, so NRIs may not face double taxation but must report the sale to the IRS. If holding more than $10,000 in an overseas account, submit an IRS Report of Foreign Bank and Financial Accounts (FBAR) and Form 3520 if repatriating profits.
Repatriation of Funds
Repatriating the proceeds from property sales is subject to specific conditions and limits, including compliance with FEMA provisions and foreign exchange laws. NRIs can repatriate up to $1 million annually, with proper documentation and tax filings (Forms 15CA and 15CB).
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