In layman’s terms, a non-resident Indian (NRI) is an Indian who lives outside of India. The Foreign Exchange Management Act (FEMA) of 1999 defines a Non-Resident Indian (NRI) as a person residing outside of India who is either an Indian citizen or a Person of Indian Origin (PIO). An owner is liable to pay taxes to the government on the sale of their immovable property under Indian Income Tax laws, based on the holding period and profit earned. The same restriction applies to non-resident Indians selling property (NRIs).
While resident Indians have more freedom, the rules governing the sale of immovable properties for non-resident Indians are slightly more restrictive. A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) can sell property in India to a resident Indian, an NRI, or POI. A person resident in India who is a citizen of India may sell agricultural land/plantation property farm house to an NRI/PIO. In the case of John Divianathan v. Vikram Malhotra, the Supreme Court ruled that the sale or gifting of property by foreign nationals such as Non-Resident Indians requires prior approval by India’s banking regulator RBI to be legally valid. People who are not Indian citizens and companies that are not established in the country are obliged to obtain prior authorization from the RBI to acquire, keep, transfer, or dispose of an immovable property. It would not be a legitimate contract or agreement under Section 10 read with Section 23 of the Contract Act until the NRI granted consent. The RBI has given universal authorization for NRIs to sell such properties without the RBI’s consent. The form of acquisition – whether it was acquired out of funds remitted from abroad or out of rupee funds – determines how the sale revenues are repatriated.
Repatriation of Sale Proceeds
If an NRI/PIO sells an immovable property in India other than agricultural land, a farm house, or a plantation property, the authorized dealer will allow the sale proceeds to be repatriated outside of India if the following conditions are met:
- The seller purchased the immovable property in conformity with the provisions of the foreign exchange law in effect at the time of purchase or the rules of FEMA Regulations.
- The amount to be repatriated does not exceed the greater of (a) the amount paid for the immovable property in foreign currency received through normal banking channels or out of funds held in a Foreign currency Non-Resident Account for acquisition of the property, or (b) the foreign currency equivalent of the amount paid as of the date of payment, where such payment was made from funds held in a Non-Resident External account for acquisition of the property.
- The repatriation of sale earnings from residential property is limited to no more than two such properties.
Documents Required for a Sale by a Non-Resident Indian (NRI)
- Passport – An NRI who wants to sell a property in India must have a passport, albeit it does not have to be an Indian passport. This acts as proof of the person involved in the transaction’s identity.
- PAN Card — Because their income is taxable in the countries where they live, many NRIs do not pay taxes in India. However, experts think that when NRIs intend to sell a property in India, they should apply for a Permanent Account Number card here, since it would be required to apply for a tax exemption certificate when the property is sold.
- Power of Attorney – For those NRIs who are unable to be physically present in India to sell property, they can issue POA to friends or relatives to complete the deal on their behalf.
- Tax Returns – A transaction becomes taxable if an NRI holds a property for a period of time and earns money from it. In that situation, tax returns for the entire term of property ownership should be preserved on hand.
- Address Proof – An NRI must provide documents proving his Indian and international addresses.
- Sale Deed – A sale deed is a legal document that an NRI signs while selling property in India.
- Allotment Letter – An allotment letter transfers ownership of a property to the person who owns it.
- Documents from the society – A letter from the apartment is required to proceed with the sales procedure for an apartment in a specific society. According to this paper, the vendor owes the society no money. A document of the society’s membership is also required to prove ownership of the land.
- Occupation Certificate and Authorized Building Plan – While a copy of an approved building plan is required when selling a home, an occupation certificate is confirmation that the apartment has been occupied and is also issued by the builder or the building society.
- Encumbrance Certificate – This document assures the buyer that the land or property has no outstanding debts to any government agency.
Tax Repercussion for NRIs selling property in India
The amount of tax due on the sale of an individual’s property is determined by the length of time the owner has owned the property. If an individual sells a property that they have owned for more than two years, they will be subject to long-term capital gains tax. Short-term capital gains tax will apply if a property is owned for less than two years.
The government has made buyers accountable for deducting different taxes on property purchases from NRIs in order to stop tax cheating by NRI investors. According to Section 195 of the Income Tax Act of 1961, any person responsible for paying any interest to a non-resident, other than interest referred to in Section 194 of the Act, or any sum taxable under the Act, must deduct tax at the time of credit or payment, whichever comes first. Such a person must deposit any tax deducted at source with the Government of India within the time frame specified. If the seller is a Non-Resident Indian, the sum must be deducted by the purchaser from the seller at the current rate of 20% + education cess as applicable on the full consideration.
Exclusively for the Indian Diaspora, Legal Help NRI offers a wide range of services for selling properties in India – include the sale of various types of assets, including agricultural, residential, and commercial properties; Drafting of sale agreement; Registration of sale deed with the revenue authorities; advice on repatriation of funds and taxation issues along with identification of buyers (if needed by the client). When it comes to delivering the correct competence in real estate, we are the most trusted legal management organization. With a professional, business-oriented approach, our goal is to achieve client satisfaction. We provide support with an understanding of the dynamics involved in the seamless closing of a real estate transaction, based on our many years of experience, skill, and proficiency in handling the whole spectrum of real estate services.