Tax Implications on Sale of Property in India by NRIs
Feb 27, 2023
Tax implications and compliance requirements that follow on sale of immovable property in India are not that straightforward in the case of a Non-Resident Indian (NRI). There is a fair amount of confusion about tax implication for NRIs who want to sell any house property that they may have in India. This article explores how much tax is payable and Tax Deduction at Source (TDS) in case of NRIs who want to sell properties in India
Taxation of Property Transactions in case of NRIs
NRIs who are selling house property which is situated in India have to pay tax on the Capital Gains. The tax that is payable on the gains depends on whether it is a short-term or a long-term capital gain. When a property is sold, after a period of 2 years from the date it was purchased – there is a long-term capital gain. In case it held for 2 years or less – there is a short-term capital gain. Tax implications for NRIs are also applicable in the case of inheritance or gift. In case the property has been inherited or acquired by way of gift, remember to consider the date of purchase of the original owner for calculating whether it’s a long-term or a short-term capital gain when the property is sold. In such a case the cost of the property shall be the cost to the previous owner.
Tax Payable
Long-term capital gains are taxed at 20% subject to benefit of Indexation and short- term gains shall be taxed at the applicable income tax slab rates for the NRI based on the total income which is taxable in India for the NRI.
Tax Deductible at Source (TDS)
When an NRI sells property, the buyer is liable to deduct TDS @ 20% (in case of long- term capital gains). In case the property has been sold before 2 years (reduced from the date of purchase) a TDS of 30% shall be applicable. The abovementioned taxes are required to be deducted by the buyer (after obtaining TAN Allotment) along with applicable surcharge and cess u/s 195 of the Income Tax Act, 1961. The return of the tax so deducted shall be filed in Form 27Q for the relevant quarter.
TDS at a Lower Rate
If tax deducted at source is more than your tax liability, then you can opt for a tax refund at the end of the year for the excess TDS. However, if you wish to avoid this cumbersome process, you can apply for a certificate of deduction of TDS at lower rate by
filing Form 13 u/s 197 of the Income Tax Act, 1961, that allows you to file for a lower TDS rate. Please note that you must apply before you execute the sale deed. The assessing officer will determine the TDS after calculating the capital gains. The seller is required to give this certificate to the buyer and the buyer will deduct the TDS as per the rates mentioned in the lower deduction certificate.
Repatriation of funds
If you wish to repatriate the proceeds from the sale of a property, you will need to submit Forms 15CA and 15CB. While you can fill out and submit Form 15CA yourself, Form 15CB is a certificate which is to be obtained from a chartered accountant. You can
repatriate outside India up to USD 1 million per financial year.
By Olvita Ancilla Dsouza & Aaron Rodrigues
Articled Assistants
