Selling Property In India For NRI

The capital gains from the sale of property by NRIs in India are liable to be taxed in India. The amount of tax depends upon the duration for which the asset has been held by the NRI.

In the case of NRI, OCI and Foreign Resident, on sale of property in India, TDS provisions have been specified u/s 195 of Income Tax Act.

As per this section rate of TDS is 20% of sale consideration if the property is long term capital assets or it is 30% of sale consideration if the property is short term capital assets. As against such proposition under the law, generally on all property sale transactions actual tax liability of the seller is lesser than the proposed TDS amount.

To overcome blockage of funds, with tax department, income tax law provide for lower deduction TDS certificate also known as TDS exemption certificate u/s 197 of the Act. Such certificate can be obtained by way online filing of form No. 13 to the jurisdictional officer along with requisite documents.

In case an NRI is unable to receive a lower/ NIL TDS certificate, we can still minimize the tax by claiming a Refund. In order to claim a refund of the TDS which is deducted, an NRI has to file an income tax return in India. The tax liability of the NRI is computed and a refund is claimed for the excess of the TDS which is paid by the NRI during the financial year.

Depending on the requirement and the financial goal of the individual, there are multiple exemption options available even to the NRIs to minimize their tax liability in case of NRI property sale in India:

Section 54

Under section 54, NRIs can claim an exemption on the Long-Term Capital Gain arising from sale of House Property in India. For claiming the same, the amount of capital gains accrued on such sale is to be put to one of the two purposes:

• Purchase of another residential house one year before or two years after the sale of the house.
• Construction of a new residential house within three years after the sale of the house.
• The amount of capital gain which is invested will be exempted from capital gain.

Section 54 EC

Another exemption option to save taxes on the sale of property in India is by investing the capital gains amount into the bonds issued by the following entities within a period of 6 months from the sale of property in India:

• Bonds issued by the National Highway Authority of India (NHAI)
• Bonds issued by the Rural Electrification Corporation of India (REC)
• Bonds issued by the Power Finance Corporation Ltd. (PFC)

These are redeemable after 5 years and must not be sold before the lapse of 5 years from the date of sale of the house property.

• The amount of capital gains which is invested in such bonds will be exempt from tax.

Section 54 EC

The exemption under this section is available against Long Term capital gain accruing from sale of any capital asset other than a residential house property. For claiming the same, the NRI has to purchase a house property, within one year before the date of transfer or two years after the date of transfer or construct one house property within 3 years after the date of transfer of capital asset. Also, the property so purchased should be situated in India and not be sold within a period of 3 years of its purchase or construction.

• Here the entire sale receipt is required to be invested. If the entire sale receipt is invested then the capital gains are fully exempt otherwise the exemption is allowed proportionately.

We provide the support in filing the Form 15CA and Form 15CB which are both related to the process of remitting money to a non-resident or a foreign entity.

• Form 15CA is a declaration of remittance, which is required to be furnished by the remitter (a person making a payment to a non-resident) to the authorized dealer bank (the bank through which the remittance is made) prior to making the payment. This form contains details such as the name and address of the remitter and the beneficiary, the purpose of remittance, the amount of remittance, and the tax deducted at source (TDS), if any.
• Form 15CB is a certificate by a Chartered Accountant, which is required to be obtained by the remitter from a chartered accountant before making a payment to a non-resident. This form certifies that the payment is not chargeable to tax in India or that the tax has been deducted at the appropriate rate. It also confirms that the remittance is in accordance with the provisions of the Income Tax Act, 1961 and the Double Taxation Avoidance Agreement (DTAA) between India and the country of the non-resident.