NRIs Selling Property in India

The current growth in the Indian real estate sector has encouraged NRIs to liquidate their properties in India to take benefit of the hike and book huge profit. However, Non Resident Indians will need to be aware of the special provisions of the Indian tax law prior to selling their real estate property in India in order to make sure an easy financial transaction along with optimum benefits.

  1. An NRI (Non Resident Indian) can only sell residential or commercial property in India to a person residing in India or to an NRI or a PIO (Person of Indian Origin).
  2.     An NRI can also transfer residential or commercial property to an authorized dealer or housing finance institution in India through mortgage.
  3.     An NRI cannot transfer by way of mortgage their residential and commercial property in India to a party abroad. Prior approval of the Reserve Bank of India (RBI) is required for this purpose.
  4.     An NRI can sell his agricultural land, farm house or plantation property in India only to a person who is a resident of India and is an Indian citizen.

Tax liabilities: For NRIs, tax implications are as per the Foreign Exchange Management Act (FEMA) 1999, for which factors that need to be considered are, transfer (sale) date for determining capital gains; agreement value for calculating profits and thereby capital gains; transfer charges to the society; legal charges and outstanding loans, if any.

If the NRI sells his/her house within 3 years from the date of purchase and makes a profit, then he/she is liable to pay short-term capital gains tax at the normal rate applicable as per his/her tax bracket. Short term capital gain is calculated as the difference between the sale value and the cost of purchase (no indexation benefit is available). Seller will be subject to a TDS of 30 per cent irrespective of his/her tax slab.  

But if the sale occurs after three years from the date of purchase, then he/she has to pay capital gains tax at a flat rate of 20%. The gains are calculated as the difference between sale value and indexed cost of purchase. Indexed cost of purchase is the cost of purchase adjusted to inflation. You can avoid the long-term capital gains tax by investing the profit after factoring the indexation benefits, in capital gains bonds such as NHAI, NABARD, REC and SIDBI or investing in another property in accordance with section 54 of the Income Tax Act within 6 months of the sale date.

Repatriation
If the property was purchased while you were a resident of India, then the sale proceeds must be credited to the NRO account. You can repatriate up to USD 1 million per calendar year from your NRO Account (including all other capital transactions), provided you have paid all taxes due.

If the property was purchased while you were a non-resident, the amount to be repatriated will follow these limits

 

  •     If you purchased a property by taking a home loan, then repatriation cannot exceed the amount of loan repayment that has been done using foreign inward remittances or debit to NRE/FCNR Accounts.
  •     If you purchased using funds lying in your Non Resident External (NRE) Account, then the repatriation cannot exceed the foreign exchange equivalent, as on date of purchase, of the amount paid through NRE Account.
  •     If you purchased the property using balance in your NRO account, then the sale proceeds must be credited to your NRO account and you can repatriate to the extent of USD 1 million (including all other capital account transactions).
  •     If you purchased using funds in the Foreign Currency Non Resident (FCNR) Account, then the repatriation cannot exceed the amount paid through this account.
  •     If you purchased by remitting foreign exchange to India through normal banking channels, then the repatriation cannot exceed the amount that you remitted.
  •     In all these cases, the balance sale proceeds can be credited to the NRO account and you will be able to repatriate up to USD 1 million per calendar year (including all other capital account transactions).
  •     In all cases, repatriation is restricted to sale of two residential properties.
     
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