Nris Watch Out for These Legal Aspects for Selling Property India
Dec 19, 2016 Legal Guidance
These days majority of the Non-Resident Indians (NRIs) are selling their properties in India as it has become extremely tough to maintain these properties due to ever increasing maintenance and housekeeping costs. It is also a suitable decision of selling the properties and encashing on it instead of spending thousands and lakhs for its care.
However, it is not as easy as it sounds and there are indeed several aspects to consider before safely transferring the funds acquired after selling the property to a new country.
Therefore, every NRI should consider following three aspects while selling a property in India:
Taxation: If a property being sold was purchased less than three years ago, then, the seller has to incur capital gains tax which stands at 20 percent.
If the property being sold was an inherited one, then, for computing the long-term capital gains, the cost to the previous owner would be considered as the cost of purchase.
Moreover, NRIs are also liable to pay TDS of 20 percent on long term capital gains but there are certain situations where an NRI is eligible for a waiver. The NRI can get a TDS waiver if he/she re-invests the capital gains in another property or tax-exempt bonds.
If you sell the property before three years of purchase, then, in such situation, the NRI is liable to pay 30 percent TDS on account of short-term capital gains tax. However, the NRI can apply for tax exemption certificate under Section 195 of the Income Tax Act, along with the proof of reinvestment of capital gains.
An NRI is given two years of time to re-invest in another property and needs to come up with the payment receipt or the allotment letter in the stipulated time. However, if he chooses to invest the money in bonds, then, the time period is only six months and needs to produce the associated affidavit.
Tax exemptions:An NRI is eligible for several tax benefits if he sells a residential property after three years of its purchase, provided he re-invests the money in another residential property within two years from the date of the sale. In such a case the profit generated is exempted to the extent of the cost of the new property. For example, if the capital gains are RS 20 lakh and the new property costs Rs 10 lakh, the remaining Rs 10 lakh is to be considered as long-term capital gains.
Moreover, as per the provisions of Section 54EC of the I-T Act, if an NRI sells a residential property after three years and invests the amount of capital gains in bonds, he will be exempted from capital gains tax. In such kind of purchase, the bonds will remain locked in for three years.
Repatriating proceeds: There are several provisions in place for NRIs and PIOs (persons of Indian origin) to repatriate the sale proceeds of property inherited from an Indian resident provided they meet certain conditions. The NRI doesn’t need permission from RBI if these conditions are met. However, if the NRI has inherited the property from a person who is himself an NRI, then, in such cases, he must seek specific permission from the RBI. In such situations, the NRI can take back the money to his new country provided the amount per financial year should not exceed $1 million.
However, it is not as easy as it sounds and there are indeed several aspects to consider before safely transferring the funds acquired after selling the property to a new country.
Therefore, every NRI should consider following three aspects while selling a property in India:
Taxation: If a property being sold was purchased less than three years ago, then, the seller has to incur capital gains tax which stands at 20 percent.
If the property being sold was an inherited one, then, for computing the long-term capital gains, the cost to the previous owner would be considered as the cost of purchase.
Moreover, NRIs are also liable to pay TDS of 20 percent on long term capital gains but there are certain situations where an NRI is eligible for a waiver. The NRI can get a TDS waiver if he/she re-invests the capital gains in another property or tax-exempt bonds.
If you sell the property before three years of purchase, then, in such situation, the NRI is liable to pay 30 percent TDS on account of short-term capital gains tax. However, the NRI can apply for tax exemption certificate under Section 195 of the Income Tax Act, along with the proof of reinvestment of capital gains.
An NRI is given two years of time to re-invest in another property and needs to come up with the payment receipt or the allotment letter in the stipulated time. However, if he chooses to invest the money in bonds, then, the time period is only six months and needs to produce the associated affidavit.
Tax exemptions:An NRI is eligible for several tax benefits if he sells a residential property after three years of its purchase, provided he re-invests the money in another residential property within two years from the date of the sale. In such a case the profit generated is exempted to the extent of the cost of the new property. For example, if the capital gains are RS 20 lakh and the new property costs Rs 10 lakh, the remaining Rs 10 lakh is to be considered as long-term capital gains.
Moreover, as per the provisions of Section 54EC of the I-T Act, if an NRI sells a residential property after three years and invests the amount of capital gains in bonds, he will be exempted from capital gains tax. In such kind of purchase, the bonds will remain locked in for three years.
Repatriating proceeds: There are several provisions in place for NRIs and PIOs (persons of Indian origin) to repatriate the sale proceeds of property inherited from an Indian resident provided they meet certain conditions. The NRI doesn’t need permission from RBI if these conditions are met. However, if the NRI has inherited the property from a person who is himself an NRI, then, in such cases, he must seek specific permission from the RBI. In such situations, the NRI can take back the money to his new country provided the amount per financial year should not exceed $1 million.
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