Selling property in India as a Non-Resident Indian (NRI) involves various tax rules, legal formalities, and compliance procedures that can be challenging to navigate from abroad. If you’re looking to sell property in India as NRI, understanding Tax Deducted at Source (TDS), managing remittance of sale proceeds, and fulfilling documentation requirements is crucial. Being well-informed is essential to ensure a hassle-free transaction. This guide breaks down the important steps NRIs must follow when selling property in India, helping you stay compliant, save money, and smoothly transfer your sale proceeds overseas.
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 who want to sell property in India as NRI, 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 an NRI. The buyer deposits TDS using their TAN against the NRI (Seller) PAN. The buyer must also provide the TDS deposit certificate, which the seller uses to assess and adjust their overall tax liability.
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 NRI Edge Can Help
At NRI Edge, 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 in India as NRI requires a thorough understanding of 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.
FAQs About Selling Property in India for NRIs
Q1. Can NRIs sell any type of property in India?
Yes, NRIs can sell both residential and commercial properties in India. However, they are not allowed to purchase agricultural land, farmhouses, or plantation properties.
Q2. Is a Power of Attorney necessary for NRIs selling property remotely?
While not mandatory, executing a Power of Attorney (POA) is highly recommended. It allows a trusted representative in India to complete the sale process on your behalf without the need to travel.
Q3. How is TDS calculated on property sales by NRIs?
TDS is deducted based on capital gains: 30% for short-term capital gains (property held less than 24 months) and 20% for long-term capital gains (property held more than 24 months). For properties registered after July 23, 2024, LTCG is taxed at a flat 12.5%.
Q4. Can NRIs apply to reduce their TDS rate?
Yes, NRIs can apply for a lower or nil TDS certificate by filing Form 13 under Section 197, which helps reduce upfront TDS deductions.
Q5. How much money can NRIs remit abroad from property sales?
NRIs can remit up to USD 1 million per financial year from the sale proceeds of up to two properties, subject to compliance with tax laws and proper documentation.
Q6. What documents are essential for selling property in India as an NRI?
Key documents include the title deed, sale agreement, encumbrance certificate, tax receipts, PAN card, proof of identity and address, and the TDS certificate provided by the buyer.
