With the real-estate business booming in recent times, the price of these property has become very high. This is one of the major reasons why many of the Non-Resident Indians (NRIs) are selling their property in India. Although the laws pertaining to selling of properties owned by NRIs have been greatly simplified, there are still some major concerns and clarifications which must be addressed before one decides to sell a property. There are strict principles for NRI property disputes and NRIs selling land in India. Let’s have a look at some of the major aspects which must be essentially known to any NRI looking to sell his property.
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Buyer Matters
An NRI can sell his property, residential or commercial, in India to an Indian Citizen or to another NRI or a Person of Indian Origin (PIO). The sale of an agricultural property is limited to Indian Citizens only under general laws. The property can also be transferred to any authorized Real Estate dealer through a mortgage. Apart from these, if an NRI wishes to sell his property to people belonging to any other category or transfer his property by way of mortgage to any party abroad, he needs to seek the approval of the Reserve Bank of India(RBI).
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Tax Liabilities
The tax liabilities of an NRI selling his property in India is decided as per the Foreign Exchange Management Act (FEMA), 1999.
If an NRI makes a sale of his property within 3 years of the date of purchase and makes a profit, then he is liable to pay a Short Term Capital Gain tax as per the interest rate of his respective tax slab. The Short Term Capital Gain is the difference between the selling and the actual purchasing price of the property. One also needs to pay a TDS of 30% which is independent of the tax slab of the NRI.
If the sale is made after 3 years from the date of purchase of the property and a profit is made, then the NRI is liable to pay a Long Term Capital Gain tax of 20%. The Long Term Capital Gain is calculated as the difference between the Selling Price of the property and it’s Indexed Purchasing Price. The Indexed Purchasing Price is the price of the property adjusted for inflation. This indexing is not available for Short Term Capital Gains. A TDS of 20% is also charged on the Long Term Capital Gain incurred during the process of selling the property.
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Tax Exemptions
If an NRI sells his residential property in India after 3 years from the date of purchase of the same and re-invests the money in another residential property, then his Long Term Capital Gain is exempted equivalent to the price of the new property.
Also, as per Section 54EC of the Income Tax Act, if an NRI sells his residential property after three years from the date of purchase and invests his capital gains in bonds, then he will be exempted from any capital gains whatsoever. However, the bonds will remain locked for a period of three years.
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Sales Repatriation
After selling the property, an NRI may repatriate the sales proceeds of the property abiding by the rules for the same. The repatriation of sales is limited to two properties only and the repatriated amount should ideally not cross the sum paid for acquiring the property. The process has been made hassle-free and simple enough for the benefit of NRIs. If the NRI has inherited the property from someone not residing in India, then he must seek specific permission from the Reserve Bank of India to ensure a seamless repatriation process.
These are some of the major aspects to be considered by an NRI if and when he decides to sell his property in India. In recent times, the process has become quite simplified. An NRI must ensure that all his doubts are clarified before closing a deal of selling his property. Sometimes, it is better to be guided by legal experts in this matter. There are a lot of fake property dealers out there and one should always look for authorized real-estate dealers so that the sale of a property is done in an appropriate and efficient manner.
Ahlawat & Associates 