There is confusion about tax implication for NRIs they may have in India and who want to sell that property. By this article we will explore to you that how much tax is payable and TDS deductible in case an NRI want to sell their property in India. NRIs who have properties in India and are selling the property have to pay tax on the Capital Gains. The taxes that NRI’s are payable on the gains depends on whether the tax is a short term or a long term capital gains. Long term capital gain is when, where a house property is sold after a period of 2 years (Reduced from 3 years to 2 years in the Budget 2017) from the date when the house was owned. In other case it held for 2 years or less there is a short term capital gain. Tax implications are also applicable in the case of inheritance. For calculation of tax implication for long term or a short term capital gain, in case of an inherited property, it is must to be considered the date of purchase of the original owner for calculating. In such a case the cost of the property shall be considered the cost to the previous owner. The Long term capital gain is taxed at the rate of 20% and short term gains shall be taxed at the applicable income tax as per the slab rates applicable by the income tax for the NRI based on the total income which is taxable in India for the NRI.
When an NRI sells any property in India, the buyer is likely to deduct TDS @ 20% on the amount. In case where the property has been sold before 2 years (reduced from the date of purchase) a TDS of 30% shall be applicable for the sale of property.
TDS at a lower rate:
Where the tax deducted at source is more than the tax liability, then taxpayer can opt for a tax refund for the excess TDS at the end of the year financial year. However, if the person wish to avoid this bulky process, the taxpayer can apply for a certificate that allows to file for a lower TDS rate . It is must to be noted that note that it should be apply before the execution of the sale agreement. After calculating the capital gains the assessing officer will determine the TDS. This process will provide you the money instantly instead of waiting for a refund.
Tax exemptions:
Non Resident Indians are allowed to claim exemptions under the sections 54, 54F and 54EC of the Income Tax Act on long term capital gains from sale of house property. Capital gains occurs through the sale of a property can be reinvested to reduce tax liabilities in India. Under section 54 is available when there is a capital gain on sale of house property. The house property may be let out or self-occupied. It is important to keep in mind that you do not have to invest the entire sale amount, but the only the amount of capital gains. However, the exemption shall be limited to the total capital gain. Also an NRI can invest the capital gains in buying another property in India within two years, then the profit generated from that sale will be exempted from tax. It is also allowed to invest the capital gains in the construction of a property but construction must be completed within 3 years from the date of sale. Section 54 F, to claim this sections exemption, the NRI must has to purchase one house property, within one year before the date of transfer or 2 years after the date of transfer or construct one house property within 3 years after the date of transfer of the capital asset. For this new house property must be purchased in India and should not be sold within 3 years of its purchase or construction.
Similarly, under section 54EC, NRI can invest the profit from the sale of property in Capital Gains Bonds within six months to get an exemption under this section. These bonds are issued by National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) and offer an interest rate of around 5.75% p.a. and can redeem after five years.
Repatriation of funds
If an NRI wants to repatriate the amount of sale of that property then he/she will need to submit Forms 15CA and 15CB. An NRI can fill out and submit Form 15CA himself. FOR Form 15CB it has to be signed and submitted by a chartered accountant.
For purposes when selling a property; it is imperative for a Non Resident Indian when selling an property to engage services of experts. The NRI experts in real estate can help in not only drafting the documents correctly but also completing the transaction by assisting the documents required for tax purposes and thereafter repatriation of funds.