Navigating Property Sales in India: A Guide for NRIs

Role of Non-Resident Indians in Property Transactions in India

Non-resident Indians (NRIs) significantly contribute to India’s economic growth, particularly in enhancing foreign exchange reserves since the liberalization era. This blog aims to clarify the regulations NRIs must follow when selling property in India.

Selling Property in India: Key Points for NRIs

1. Appointment of Power of Attorney:

   • NRIs unable to travel to India can designate a Power of Attorney as their agent to facilitate the sale of property. However, if the NRI visits India, they must comply with the Indian Registration Act and the Indian Stamp Act to complete the sale.

2. Capital Gains Tax for NRIs:

   • Selling a property held for over two years subjects the NRI to a long-term capital gains tax of 20% on the profit.
   • For properties owned for less than two years, short-term capital gain tax applies, which aligns with the tax rates for other income earned by the NRI. The applicable income tax rates are as follows:
     • A. 5%
     • B. 20%
     • C. 30%

   If the NRI opts for Section 115 BAC, the income tax rates are:

   • i. 5%
   • ii. 10%
   • iii. 15%
   • iv. 20%
   • v. 25%
   • vi. 30%

3. Inherited Property:

   • In the case of inherited property, the holding period is based on the original owner's acquisition date to determine long-term or short-term capital gains.

4. Tax Residency Status:

   • An NRI who has not visited India in the previous tax year is considered a resident but not ordinarily resident for taxation if their income exceeds ₹15 lakhs.

5. Tax Deduction and TAN Requirement:

   • A Tax Deduction and Account Number (TAN) is mandatory for purchasing property in India. Buyers must apply for TAN to facilitate the deduction and remittance of tax to the government.

Tax Deduction at Source (TDS) Overview

• Long-term Capital Gain:
  • 20% Income Tax + 10% or 15% Surcharge + Health and Education Cess @ 4%
• Short-term Capital Gain:
  • Tax rates of 5%, 20%, or 30% based on the applicable income, plus surcharge and health and education cess @ 4%.

6. TDS Deduction Requirement:

   • Under Section 195, buyers cannot transfer payment to NRIs without deducting TDS. An NRI should provide a certificate for lower TDS deduction from the Income Tax Department. If unavailable, the buyer deducts TDS based on the total sales price instead of just on capital gains.

7. Deductions for NRIs: NRIs may claim deductions under:

   • Section 54: For acquiring a new residential property within two years of selling the existing property, or before one year if already purchased. If constructing, it must be done within three years. Eligible exemptions are the lower of the long-term capital gain or the cost of the new house/amount in the capital gains account scheme.
   • Section 54EC: For investments in specified bonds from institutions like the National Highways Authority of India, Rural Electrification Corporation Ltd, Power Finance Corporation Ltd, and Indian Railway Finance Corporation Ltd.
   • Section 54F: For investing capital gain amounts in a new residential house.

8. FEMA Compliance:

   • Buyers must comply with Foreign Exchange Management Act (FEMA) regulations when transferring amounts abroad related to these property transactions.