Indian real estate has emerged as one of the most profitable investment options for several NRIs over the years. And, frankly, the NRIs have earned good returns over a period of time. But, while you may be looking to sell your property ‘now’, it is advisable that you know the rules and regulations. To start with, remember there are no restrictions on the number of properties that you may purchase or sell, either residential or commercial. Similar to the purchasing process, property sale is also not all that complicated for an NRI in India.
Hence, let’s take a close look at some of the important things to consider while selling your property in India.
Capital Gains Tax
Any profits earned by selling the properties in India are liable for capital gains tax under the Income Tax Act 1961. Capital gain is essentially the difference between the sale value of property and the actual cost value of it. Capital gains is further classified into two based on the period of holding of the property: Long Term Capital Gains (LTCGs) and Short Term Capital Gains (STCGs). If the holding period is lesser than 36 months it is a short term capital asset; otherwise it is a long term capital asset.
TDS on Property
When an NRI sells a property in India, Tax Deducted at Source (TDS) is calculated at the rate of 20.9 per cent on LTCGs and 30.9 per cent on STCGs. The final taxation rate is similar for NRIs and resident Indian. If an NRI is liable to pay a lower tax slab then refund of the TDS can be received by filing income tax returns.
How to Save Taxes?
If you want to save taxes on the sale of your property then there are few options available.
Buy Another Property: Under Section 54 of the Income Tax Act, if you sell a residential property (after 3 years from the date of purchase) then the entire amount can be used to either buy another property within two years or construct a house in three years. All NRIs are eligible to avail the tax exemption. The rule is also applied if you have already bought another property within a year before selling the first one.
Invest in Bonds of NHAI and REC: To be exempted from taxes on LTCGs, NRIs can also invest their profits into the bonds issued by National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC) within six months of date of sale.
Capital Gains Scheme: In another method of saving tax, NRIs can also keep the entire profit in a nationalized bank under the Capital Gain Account Scheme (CGAS) until the due date of filing income tax returns only and avail tax exemption with a condition that the deposited amount must be used only to purchase or construct a new property within a specified period.
Repatriation of Sale Proceeds
If you want to take your sale proceeds outside India after selling your property then the repatriation of funds must be reported to the RBI by filing up a prescribed form.
Repatriation of funds is subject to certain conditions mentioned below:
- The property should be bought in accordance with the FEMA directives.
- The total amount to be repatriated has to follow certain limits:
- If the property has been purchased by remitting foreign exchange to India via normal banking channels, then the repatriation amount cannot exceed the amount that you remitted.
- If the property has been purchased using funds from the Foreign Currency Non Resident (FCNR) account, then the repatriation amount cannot exceed the amount paid through this account.
- If the property has been purchased using funds lying in your Non Resident External (NRE) account, then repatriation cannot exceed the foreign exchange equivalent, as on the date of purchase, of the amount paid through NRE account.
- If property has been purchased by availing 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 property has been purchased 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 $1 million (including all other capital account transactions).
Under all circumstances, repatriation is restricted to sale of two residential properties only.