Clipped from: https://taxguru.in/income-tax/tax-implications-nris-selling-property-india.html
Summary: NRIs selling property in India must navigate various tax rules, including capital gains tax. Short-term capital gains (STCG) apply if the property is sold within two years and are taxed at the applicable slab rate, while long-term capital gains (LTCG) apply if the property is held for over two years and are taxed at 20%, with indexation benefits. TDS is deducted by the buyer at 20% for LTCG and 30% for STCG, but NRIs can obtain a TDS certificate to reduce withholding. Exemptions like Section 54 (reinvestment in residential property) and Section 54EC (investing in specified bonds) can help reduce LTCG taxes. NRIs can repatriate sale proceeds up to $1 million annually, subject to FEMA guidelines. Required documentation includes the title deed, TDS Form 16B, tax receipts, and Forms 15CA/15CB for repatriation. It’s crucial for NRIs to ensure proper TDS rates, maintain records for exemptions and refunds, and seek professional advice to manage their tax obligations efficiently and minimize liabilities.
Property selling by NRIs in India has its own set of rules in regard to tax and compliance regard. This mastermind has created a scratch outline as a effective way to understand taxes and generally managing such transactions.
1. Tax on Capital Gains
- Short-Term Capital Gains (STCG):
- Applicable if the property is held for less than 2 years.
- Gains are simply added to total income and taxed at the applicable slab rate.
- Long-Term Capital Gains (LTCG):
- Applicable if the property is held for 2 years or more.
- LTCG is calculated on 20% profit along with index benefit which is an adjustment in purchase price based on inflation.
2. Tax Deducted at Source (TDS)
- Potential Buyers or buyers are responsible to TDS at the rate of 20% in case of LTCG and 30% on the selling price of STCG.
- An NRI is able to obtain a TDS certificate which minimizes withholding from the Income Tax Department.
3. Exemptions on LTCG
The Following sections can also help NRIs reduce his tax liability so they do income tax return:
- Section 54: LTCG in investment in residential property in India where buy is done in 2 yrs after selling or construction can be done after 3.
- Section 54EC: The law states that certain bonds which include REC and NHAI can be invested in within 6 months of the sale.
- Section 54F: All proceeds from the sale of the asset, if reinvested in a residential property, makes the investor fully exempt from LTCG.
4. Repatriation of Sale Proceeds
NRIs can repatriate sale proceeds up to 1 million dollars in a financial year as per the FEMA guidelines. Make sure that:
- The real estate property was bought in accordance with FEMA regulations.
- All the taxes incurred after property sale as well as Form 15CA/15CB are submitted for repatriation.
5. Documentation Required
- Title deed and sale agreement.
- TDS Form 16B issued by the buyer.
- Tax payment receipts and computation of capital gains.
- Form 15CA and Form 15CB if required for repatriation.
6. Key Considerations
- Ensure that correct rates with respect to TDS are withheld and filed to avoid penalties.
- Keep adequate records to support claims for exemption and refund.
- Seek professional advise to protect against overpayment of taxes while respecting the rules.
Conclusion
The NRI seller of the property located in India is always faced with intricate issues concerning his tax planning, TDS obligations, as well as the requirements of the FEMA. It is also important to know how the capital gains are taxed and the applicable tax relief provisions in order to minimize tax expense and repatriate proceeds of the sale.
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Shubham Goyal | Email: casgpj@gmail.com | Phone: 8171582583
Disclaimer: This article is for informational purposes only and does not constitute professional advice. Shubham Goyal assumes no responsibility for actions taken based on this content.
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