Taxation on Sale of property by NRI in India

NRI stands for Non-Resident Indian. These are people who have their roots attached to India, but are settled abroad somewhere. These people may have invested in property in India or might have their ancestral property in India. They may decide to sale such properties located in India. In this article we will discuss the Tax on NRI Property Sale in India. We will also discuss the various obligations applicable on both seller and buyer. So, let’s get started

Contents

Tax on NRI Property Sale

Any transaction that involves sale of property is chargeable to tax. The tax rate is applicable depending on the period of holding of the asset. The period of holding of an asset decides if the asset was Long Term or Short Term.

Long Term Asset- If an asset was held for more than 2 years than it is called Long Term Asset. The rate of 20% is applicable on sale of Long Term Asset. The seller is eligible to claim indexation benefit on the cost of acquisition. In case of inheritance, the cost of acquisition of original owner will be considered.

Short Term Asset- If an asset was held for less than a period of 2 years than it is called Short Term Capital Asset. The sale of such asset is taxable at normal rates applicable to the assesee.

Now, we will discuss the rate of TDS applicable on Property Sale.

TDS Rates applicable on NRI Property Sale

Whenever we buy a property from a resident, TDS needs to be deducted on the transaction. Similarly in case of purchase of property from NRI also TDS is applicable. The rates of TDS applicable are as follows:-

 

Tax Rates

Sale Value of Property
Less Than 50 lakhs 50 lakhs to 1 crore More than 1 crores 1 crore to 2crores Above 2 crores
LTCG Tax 20% 20% 20% 20% 20%
(+)Surcharge Nil 10% of tax 15% of tax 25% of tax 37% of tax
(+)Health and Edu. Cess 4% of above 4% of above 4% of above 4% of above 4% of above
Effective TDS Rate 20.80% 22.88% 23.92% 26% 28.496%

Other Important Points

  • TDS needs to be deducted even when any advance is paid to the NRI seller.
  • The buyer needs to obtain TAN compulsorily. Unlike a purchase from resident TAN is mandatory in this case. As a result, buyer also needs to file TDS Return and issue Form 16A to the seller.
  • There is no threshold limit for TDS deduction in case of purchase from NRI. That is to say that even if value of Property is less than Rs.50 lakhs, TDS needs to be deducted and paid.

Is there an Option to deduct TDS at lesser rates?

From above discussion we can observe that TDS is to be deducted at tax rate applicable to the transaction. This implies that all the tax liability of the seller is discharged by TDS deduction only in respect of Property Sale. However, this may lead to issues where seller is looking to take an exemption or some other cases where he already has paid excess tax. In such cases, the seller will have to get into claiming and waiting for refunds. So, to avoid such situations law has given an option to seller to seek a lower tax deduction certificate from income tax authorities.

The procedure to obtain the same is as follows:-

  • Application can be made online on TDS- TRACES portal.
  • Documents like agreement for sale, purchase document, stamp duty value and calculation of capital gain needs to be uploaded.
  • The income tax officer will make necessary verifications. If he is satisfied he will issue lower tax deduction certificate.
  • Once the seller receives such certificate, he can provide the same to buyer for TDS deduction at lower rate.

You may get in touch with our team in case you need any assistance in this regard.

Exemptions available under Income Tax Act

Now, an NRI can also avail exemptions under Income Tax Act. The exemptions as follows are available.

Capital gain from sale of residential property By investing in specified bonds Capital gain from sale of other than residential property
  • Applicable on Individual/HUF.
  • By investing in another residential property.
  • Purchase before 1 year or after 2 years of sale. In case of Construction, should be done within 3 years.
  • If capital gain less than Rs.2 crores than two residential properties allowed for investment. Option available only once in lifetime.
  • Exemption of Rs.50 lakhs is allowed in one financial year.
  • The investment should be made within 6 months of the sale.
  • The bonds must be held for atleast 5 years.
  • By investing in another residential property.
  • Purchase before 1 year or after 2 years of sale. In case of Construction, should be done within 3 years.
  • The house acquired cannot be sold for atleast 3 years.
  • Entire sales receipt should be invested.
  • The taxpayer should not have more than 1 house property on date of transfer.

Other Relevant Points

There are various other points relevant to Tax on NRI property sale. We will discuss them in brief here:-

  • Even if the seller has no other income other than capital gain, he cannot claim benefit of slab. The whole amount will be taxable.
  • Taxpayer is allowed to take relief under DTAA(Double Tax Avoidance Agreements) to avoid double taxation.
  • The repatriation of money can be made only upto USD 1 million per financial year per person.
  • NRI seller needs to furnish Form 15CA and 15CB for remittances.
  • It is advisable that NRI seller submits his return of income in India as it will help him to claim refund, exemptions, DTAA relief and carry forward losses in case required.

Conclusion

In this article we have discussed Tax on NRI property sale in detail. On one hand we can see that provisions are made in a manner to secure tax amount right at the time of transaction. On the other hand government has given an option to obtain lower tax deduction certificate to avoid any hardships to the seller. In addition to Income Tax department authorities like FEMA and RBI also regulate forex transactions. So, NRIs also need to follow all the rules laid down by these authorities.

CategoryIncome Tax

CA Rohit Goyal has experience in multiple spheres including general functions in the field of Auditing, Accounting, and handling Scrutiny Assessments, Taxation Matters along with the specialized functions including Finance, Banking and also handles the field of Stock Audit, Internal Audit and other Various Assignments of Banks.

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