Selling a property in India as a Non-Resident Indian (NRI) involves several tax implications that must be carefully understood to ensure compliance with Indian laws. Whether you’ve inherited the property or purchased it as an investment, the process of selling it comes with responsibilities related to capital gains tax, TDS deductions, and repatriation of sale proceeds. This blog explains the key aspects of NRI tax on property sale, helping you make informed decisions.
1. Capital Gains Tax on Property Sale
The nri tax on property sale depends on how long the property has been held:
Short-Term Capital Gains (STCG): If the property is sold within 2 years of purchase, the gain is considered short-term and is taxed at slab rates applicable to the NRI.
Long-Term Capital Gains (LTCG): If the property is held for more than 2 years, the gain is long-term and taxed at 20% with the benefit of indexation (adjusting for inflation).
2. TDS (Tax Deducted at Source) for NRI Sellers
A key difference for NRIs compared to resident Indians is the rate and applicability of TDS:
TDS on LTCG: A buyer must deduct 20% TDS on the sale amount (if LTCG applies). With surcharge and cess, the effective rate may be slightly higher.
TDS on STCG: TDS is deducted at the applicable income tax slab rate of the NRI.
The buyer is responsible for deducting this TDS and depositing it with the Income Tax Department.
Important Note: TDS is deducted on the total sale value, not just on the capital gains, which often results in a higher upfront deduction.
3. Obtaining a Lower or Nil TDS Certificate
To avoid excessive deduction, NRIs can apply for a lower or nil TDS certificate from the Income Tax Department under Section 197.
The application is made to the Assessing Officer via Form 13.
If approved, the buyer can deduct TDS at the lower rate mentioned in the certificate.
This is a practical solution if the actual tax liability is lower than the standard TDS rate.
4. Repatriation of Sale Proceeds
NRIs can repatriate the proceeds from the sale of property in India, subject to certain conditions:
The amount repatriated should not exceed USD 1 million per financial year, per person.
The property must have been purchased in compliance with the Foreign Exchange Management Act (FEMA) regulations.
Documentation such as Form 15CA/15CB, bank NOC, and proof of tax paid is required.
The funds should be routed through NRO accounts for repatriation.
5. Deductions Available for NRIs
NRIs are eligible for various deductions to reduce their taxable capital gains:
Section 54: Exemption on LTCG if another residential property is purchased in India within 1 year before or 2 years after the sale, or if construction is done within 3 years.
Section 54EC: Investment in specified bonds (like NHAI or REC) within 6 months of sale up to ₹50 lakhs allows exemption.
Section 54F: Applicable if the entire sale consideration (not just the gain) is reinvested in a new residential property.
These deductions are subject to conditions and documentation, and professional advice is recommended.
6. Filing of Income Tax Return
An NRI who sells property must file an Income Tax Return (ITR) in India for the relevant financial year, even if TDS has been deducted.
Filing is essential to claim refunds or set off losses.
Capital gains must be reported under Schedule CG in the ITR.
Late filing may attract penalties, and failing to report the transaction can lead to scrutiny.
7. Joint Ownership and Inheritance Cases
If the property is jointly held with another NRI or resident Indian, the tax liability is split based on the ownership share.
In inherited properties, the holding period includes the period held by the previous owner. This often qualifies the gain as long-term.
8. Professional Help and Compliance
Due to the complex nature of real estate taxation for NRIs, it is advisable to consult a tax advisor or chartered accountant who specializes in NRI taxation. Compliance with tax rules, proper paperwork, and timely filings are critical to avoid legal hassles and financial losses.
Conclusion
Selling property in India as an NRI involves multiple tax and regulatory obligations. Understanding the rules around capital gains, TDS, repatriation, and deductions is key to ensuring a smooth and compliant transaction. With proper planning and expert guidance, NRIs can not only reduce their tax liability but also repatriate their funds with ease.
For expert assistance on NRI property tax matters, Dinesh Aarjav & Associates offers reliable and customized tax consultancy services.
