Tax Obligations for NRIs Selling Property in India: A Complete Guide

Tax Obligations for NRIs Selling Property in India

Non-Resident Indians (NRIs) who are selling property in India must be aware of various tax obligations, repatriation rules, and relevant international tax treaties. The following are essential aspects NRIs need to consider:

TDS Deduction on Sale of Property

TDS Rates:

• For property sales conducted post July 23, 2024, the standalone Tax Deducted at Source (TDS) rate for long-term capital assets is set at 12.5%. This will also include a surcharge of 15% and a 4% cess on the income tax.
• If the sale amount exceeds ₹2 crores, the applicable TDS rate rises to 14.95%, which comprises the 12.5% income tax, a 15% surcharge, and the 4% cess.

TDS Deduction and Refund Process:

• TDS will not apply if the seller presents a certificate for a lower withholding tax under Section 197 to the buyer. In this case, the buyer must remit TDS on the total sale amount.
• To reclaim excess TDS, NRIs must file an Income Tax Return. Additionally, sellers can request deductions if they possess a TDS certificate from the buyer (Form 16A).

Repatriation of Funds from NRO to Overseas Account

Once the sale proceeds are credited to the NRO account, NRIs can transfer these funds overseas with the necessary approvals from Indian banks and compliance with taxation regulations.

• Direct Repatriation Process:
  • Under the Liberalized Remittance Scheme (LRS), NRIs may repatriate up to USD 1 million per financial year.

Required Documents for Repatriation:

• Form A2 (Declaration for foreign remittance)
• Form 15CA (Part C) submitted to the bank
• Form 15CB (CA-certified tax clearance certificate)

Step-by-Step Repatriation Process:

1. Transfer from NRO to NRE Account: Once the property is sold, the seller should transfer the sale proceeds to their NRE account by submitting Forms A2, 15CA (Part C), and 15CB to the bank.
2. Transfer to Overseas Account: After funds are in the NRE account, they can be directly sent to the overseas account via online banking.

Tax Collection at Source (TCS) Applicability

TCS Relevance:

• TCS is not applicable to repatriation from NRO or NRE accounts, as TDS already applies to property sales made by NRIs. Therefore, no further tax collection is required during these transactions.

Bank Charges and Associated Costs

Bank Charges for Foreign Transfers:

• Banks such as SBI usually charge an additional 0.75% to 1% on the amount transferred, in addition to GST.
• Additional charges may apply for SWIFT or correspondent banks.

No Additional Taxes:

• Other than TDS and applicable bank fees, there are no extra taxes associated with the sale proceeds.

Investing in Section 54EC Bonds to Save Capital Gains Tax

NRIs seeking to avoid immediate capital gains tax can invest in Section 54EC bonds.

• Investment Details:
  • Purchase bonds within six months of sale date and maintain the investment for five years.
• TDS on Bond Interest:
  • Interest from these bonds is exempt from TDS for NRIs, but it will be taxed at the applicable rates in India.

Taxation in Germany Under DTAA

Interest Income Declaration:

• NRIs residing in Germany must declare all interest from 54EC bonds on their tax returns.

Tax Credit under DTAA:

• The Double Taxation Avoidance Agreement (DTAA) between India and Germany allows NRIs to claim credits for taxes paid in India, thereby preventing double taxation. If Germany imposes a higher tax than India, the difference must be borne by the NRI.

Key Takeaways

• TDS applies to the entire sale consideration unless a lower deduction certificate is provided.
• NRIs can repatriate funds up to USD 1 million annually with proper documentation.
• There is no Tax Collection at Source (TCS) for fund transfers from NRO accounts to NRE accounts or overseas.
• Investing in 54EC bonds can help save capital gains tax, though the investment is locked for five years.
• NRIs must report Indian income on tax returns in their country of residence as per treaty provisions.