Selling property in India as a Non-Resident Indian (NRI) may seem daunting due to various legal and tax requirements, especially when managing the transaction from abroad. However, with the right guidance and tools, such as a Power of Attorney (POA) and Low TDS Certificate, NRIs can simplify the process and ease of their tax burden. This guide for NRIs selling property in India provides a comprehensive overview to help NRIs understand the steps involved, including eligibility, legal documentation, tax considerations, and how to handle remittance of sale proceeds.
Eligibility of NRIs to Sell Property in India
According to Indian law, NRIs, Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) can sell immovable property in India. However, the type of property you own can determine your eligibility to sell:
- NRIs can sell any type of property in India, including residential and commercial properties, to Indian residents or other NRIs. However, they are not permitted to purchase agricultural land, farmhouses, or plantation properties in India.
Selling Property in India with a Power of Attorney (POA)
A common question many NRIs have is how to sell their property if they cannot be in India to close the sale. The solution is to execute a Power of Attorney (POA), allowing a trusted representative (family member or friend) in India to handle the sale on your behalf.
- Executing a POA: The draft of the GPA/ SPA needs to be notarized by the local notary in your city. Once notarized the document needs to be submitted to the nearest Indian Consulate or High Commission for execution/ stamping. Once executed from the Consulate/ High Commission the document then needs to be adjudicated at the relevant sub registrar’s office in India.
For more information, refer to this blog on Power of Attorney for NRIs Selling Property.
Understanding Capital Gains Tax
When NRIs sell property in India, they must account for capital gains tax, determined by the holding period of the property:
- Short-Term Capital Gains (STCG): If the property is sold within 24 months of acquisition, gains are classified as STCG and are taxed at the applicable income tax slab rate (up to 30%).
- Long-Term Capital Gains (LTCG): For properties held beyond 24 months, LTCG applies. For properties registered on or after July 23, 2024, the tax rate is a flat 12.5% without the benefit of indexation. Properties registered before this date may choose between the older rate of 20% with indexation or the new flat rate, depending on which is more favorable.
For additional insights, refer to this blog on Essential Tax Guidance for NRIs Selling Property in India.
Tax Deducted at Source (TDS) Requirements
When an NRI sells property in India, the buyer must deduct TDS based on the capital gains:
- TDS for Long-Term Gains: 20%
- TDS for Short-Term Gains: 30%
The buyer must provide a TDS certificate, which the NRI (seller) can use for tax credit when filing their Income Tax Return (ITR) in India.
Utilizing Tax Exemptions and Deductions
NRIs can minimize their capital gains tax by reinvesting the gains under specific sections of the Income Tax Act:
- Section 54: Allows NRIs to claim exemption by reinvesting capital gains from the sale of a residential property into another residential property in India. Purchase must be made within one year before or two years after the sale, or construction within three years.
- Section 54EC: NRIs can invest in specified government bonds (e.g., NHAI, REC) within six months of the sale to defer or reduce capital gains tax.
For more on these tax-saving options, refer to Essential Tax Guidance for NRIs Selling Property in India.
Key Steps for Remitting Sale Proceeds
For NRIs remitting property sale proceeds, the following are essential considerations:
- Remittance Eligibility: NRIs can remit up to USD 1 million per financial year, including proceeds from up to two properties, provided funds are transferred to an NRO (Non-Resident Ordinary) account.
- Documentation: Essential documents include the sale deed and proof of ownership, and taxes must be paid before remittance.
- TDS Compliance: TDS must be deducted before the sale is registered. NRIs can apply for a lower TDS certificate under Section 195 of the Income Tax Act if their tax liability is lower than the standard deduction.
For a detailed process, refer to NRIs Remitting Property Sale Proceeds in India.
Documents for NRIs Selling Property in India
- Title Deed: Proof of ownership, registered with the local sub-registrar.
- Sale Agreement: Outlines terms and conditions of the sale.
- Encumbrance Certificate (EC): Confirms the property is free from legal dues.
- Tax Receipts: Shows up-to-date payment of property taxes.
- No Objection Certificate (NOC): Required from relevant authorities.
- Occupation Certificate (OC): Indicates the property is fit for occupancy.
- Power of Attorney (PoA): Allows an NRI to appoint a representative in India.
- Identity and Address Proof: Includes passport, PAN card, and proof of overseas address.
- PAN Card: Required for financial transactions in India.
- Bank Account Details: NRE/NRO account for sale proceeds.
- Approved Building Plan: Verifies construction legality.
- TDS Certificate: Issued by the buyer for tax filing purposes.
- Society Documents: For properties in cooperative societies.
- Gift Deed or Will (if applicable): Establishes chain of ownership for inherited or gifted property.
For a complete list of required documents, refer to Essential Documents for NRIs Selling Property in India: A Guide.
Conclusion
Selling property in India as an NRI involves navigating complex tax and legal requirements, making expert guidance invaluable. Each sale may have unique implications depending on factors like property type, holding period, and repatriation plans. Consulting with experienced advisors can help ensure compliance, explore tax-saving options, and reduce transaction costs.
This guide for NRIs selling property in India serves as a valuable resource, but for personalized assistance, Brivan Consultants offers tailored solutions for NRIs. Our team specializes in NRI taxation and property transactions, helping you make informed, cost-effective decisions. Contact Brivan Consultants today for expert support in selling your property in India from abroad.
