For NRIs owning property in Bangalore, selling real estate involves understanding complex tax regulations and deduction rules to ensure compliance and optimize returns. This guide explains key taxation aspects, deductions, and processes associated with selling property as a Non-Resident Indian in Bangalore.
When an NRI sells a property in Bangalore, the gains are taxable under the Income Tax Act as capital gains and classified based on the holding period:
Capital Gains Tax on Property Sale
Long-Term Capital Gains (LTCG): If the property is held for more than 2 years, gains are considered long-term. LTCG on property sale is generally taxed at a base rate of 12.5% without indexation benefit (for all properties sold post-July 23, 2024).
Short-Term Capital Gains (STCG): If sold within 2 years, gains are taxed at the individual’s applicable income tax slab rates, potentially up to 30% plus surcharge and cess.
Tax Deducted at Source (TDS)
The buyer must deduct TDS when purchasing property from an NRI.
TDS rates applicable are:
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12.5% plus surcharge and cess for LTCG (effective rates vary roughly between 13% to 18%)
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30% plus surcharge and cess for STCG
The TDS is to be deducted on the capital gains amount (not the entire sale value) if the seller provides a certificate from the income tax department; otherwise, it may be deducted on the full sale consideration.
Exemptions and Deductions to Reduce Tax Liability
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Section 54: Exemption on LTCG by reinvesting in a residential property within 2 years (before or after sale).
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Section 54EC: Investment in specified bonds (such as REC or NHAI) within 6 months of sale can provide exemption up to ₹50 lakhs.
Filing Income Tax Returns and Claiming Refunds
NRIs must file income tax returns in India declaring capital gains from property sales.
If excess TDS is deducted (e.g., deducted on full sale value instead of capital gains), the NRI can claim a refund by filing a tax return.
Applying for a Lower/Nil TDS Certificate under Section 197 before the transaction can help reduce upfront TDS deduction.
Other Considerations for NRIs
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Proceeds from property sales are credited to the NRO account and can be repatriated up to USD 1 million per financial year subject to RBI rules and tax clearance.
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Capital gains rates and rules may vary slightly depending on property type and buyer-seller transactions but generally follow similar laws nationwide, including Bangalore.
Frequently Asked Questions (FAQs)
Q1. How is capital gains tax calculated for NRIs selling property in Bangalore?
Capital gains tax depends on holding period. LTCG applies if the holding period exceeds 2 years, taxed at 12.5% without indexation benefit. STCG applies if sold within 2 years, taxed at slab rates.
Q2. What is the current TDS rate for NRIs selling property?
TDS is deducted by the buyer at 12.5% plus applicable surcharge and cess for LTCG, and 30% plus surcharge and cess for STCG on capital gains amount or full sale value if no certificate is provided.
Q3. Can NRIs reduce tax liability on capital gains?
Yes, NRIs can claim exemptions under Sections 54 and 54EC by reinvesting gains in residential property or specified bonds.
Q4. Is it mandatory for buyers to deduct TDS on property purchases from NRIs?
Yes, under Section 195, buyers must deduct TDS before making payment to the NRI seller and deposit it with the Indian Income Tax Department.
Q5. What if excess TDS is deducted?
The NRI seller can file an income tax return to claim a refund for excess TDS deducted beyond actual tax liability.
Q6. How can NRIs repatriate sale proceeds?
Sale proceeds are credited to the NRO account and can be repatriated up to USD 1 million annually after completing necessary tax and RBI compliances.
Conclusion
Taxation on property sales by NRIs in Bangalore involves clear rules on capital gains, TDS deduction, and exemptions that can help optimize tax liabilities. Understanding these laws, planning reinvestments, and timely filing of returns ensure compliance and enhance financial outcomes. Professional tax advice and legal guidance can further simplify the process and help NRIs maximize benefits from their Bangalore real estate investments.
