For Non-Resident Indians (NRIs), navigating an NRI property sale in India comes with specific tax and compliance requirements, from tax deductions at the source to remittance restrictions. Understanding these requirements can make the sale process smoother and help NRIs maximize their returns. This guide highlights five key points every NRI should consider when planning a property sale in India.
1. Tax Deducted at Source (TDS) Obligations
When NRIs sell property in India, the buyer must deduct Tax Deducted at Source (TDS) before making payments to the NRI seller. The rate of TDS depends on the type of capital gains tax applicable, based on the duration for which the property was held.
- Short-Term Capital Gains (STCG): If the property is sold within 24 months of acquisition, it qualifies as STCG. The gains are taxed at the NRI’s income tax slab rate, which can be as high as 30%.
- Long-Term Capital Gains (LTCG): For properties held longer than 24 months, the gains are considered LTCG. As of July 23, 2024, the tax rate for LTCG is now a flat 12.5% without the benefit of indexation for properties registered on or after this date. NRIs selling properties purchased before this date may still choose the older rate of 20% with indexation to benefit from inflation adjustments, based on which option is more favorable.
Tip: NRIs can file Form 13 under Section 197 of the Income Tax Act to request a lower or nil TDS deduction. This reduces the amount withheld upfront, helping avoid overpayment and minimizing wait times for refunds.
For more in-depth guidance, refer to our blog on Essential Tax Guidance for NRIs Selling Property in India.
2. Ensuring an Active PAN for Smooth Transactions
An active Permanent Account Number (PAN) is essential for NRIs when selling property in India, as it facilitates smoother transactions and helps avoid delays. An inactive PAN can cause significant complications, especially when applying for lower TDS certificates, where an active PAN is a mandatory requirement.
To prevent such issues, NRIs should verify that their PAN is active and operational well in advance of any property transaction in India.
3. Remitting Sale Proceeds
Transferring proceeds from a property sale to an NRI’s overseas account requires adherence to specific remittance regulations. NRIs are permitted to remit up to USD 1 million per financial year, which includes proceeds from the sale of up to two properties. Before remittance, these funds must be deposited into an NRO (Non-Resident Ordinary) account in India. Additional requirements to keep in mind include:
- Capital Gains Tax Compliance: All applicable taxes, including capital gains tax, must be fully settled before initiating the remittance.
- Documentation: Essential documents, such as the sale deed and proof of ownership, are required to process the remittance.
- TDS Compliance: TDS is deducted at 20% for long-term gains and 30% for short-term gains.TDS deduction is a liability of the buyer. The buyer must have a TAN (Different than PAN) when buying a property from a NRI. The buyer deposits TDS using their TAN against the NRI (Seller) PAN. The buyer hence is also required to share the TDS deposit certificate using which the overall tax liability for the seller is assesses/adjusted.
With proper planning, remitting sale proceeds can be managed smoothly, ensuring a seamless transfer of funds from India to an NRI’s overseas account. For more detailed guidance, see our blog on NRIs Remitting Property Sale Proceeds from India.
4. Minimizing Tax through Reinvestment Options
To reduce tax liabilities from property sales, NRIs can reinvest their capital gains by utilizing provisions under Section 54 and Section 54EC of the Income Tax Act:
- Section 54 (Residential Property): NRIs can claim an exemption by reinvesting the gains from a long-term residential property sale into another residential property in India. This reinvestment should occur within one year before or two years after the sale (or within three years if the property is under construction).
- Capital Gains Account Scheme: If the reinvestment cannot be made within the same financial year, NRIs have the option to deposit the sale proceeds into a Capital Gains Account Scheme, deferring taxes until the funds are reinvested.
- Section 54EC (Specified Bonds): NRIs may also invest in government-backed bonds issued by entities like the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) with a five-year lock-in period, allowing for additional tax savings.
These reinvestment strategies enable NRIs to effectively minimize their capital gains tax burden, ensuring a more favorable financial outcome from the property sale. For more detailed insights, refer to our blog on Capital Gains Tax for NRIs Selling Property in India.
How Brivan Consultants Can Assist
At Brivan Consultants, we understand the complexities involved in property transactions for NRIs. From obtaining essential documents like the NOC and managing TDS compliance to handling remittance processes, we provide comprehensive support for NRIs selling property in India. Our team ensures all legal and tax requirements are met, allowing NRIs to manage their property transactions confidently and seamlessly from abroad.
Conclusion
Selling property as an NRI requires a thorough understanding of NRI property sale in India tax and compliance requirements, including TDS obligations, capital gains tax, remittance procedures, and necessary documentation. By addressing these key factors, NRIs can achieve a legally compliant, seamless sale process and maximize their financial returns.
