Indian property sale has seen an interesting trend in recent years. With the rise of the real estate market, there has been an increase in the number of NRIs (Non-Resident Indians) investing in their home country. According to a report by JLL India, NRIs have invested around $10.2 billion in the Indian real estate market in the year 2019 alone. This is an indication of the growing interest of NRIs in investing in India. Often a PIO may sell property to an NRI.
However, to ensure a successful Indian property sale, it is essential to take into account three indispensable components. Failure to prepare adequately can lead to expensive delays and complications. In the following article, we will elaborate on crucial aspects to gain a better understanding of the process to help a smoother sale.
Three Essential Components
Although there are several aspects to the sale of Indian property, there are fundamental regulatory obligations. Towards the final transaction between the buyer and seller, you will need to ensure three factors. You have an active PAN card and an active Non-Resident Ordinary Account Number. Thirdly, the correct filing of TDS for repatriation of your proceeds.
- Procuring a Permanent Account Number (PAN) card is mandatory. This is an identification document for TDS tax purposes in Indian property sales.
- It is essential to possess a Non-Resident Ordinary (NRO) account, which facilitates the management of the income accrued in India. Usually, the Indian Bank, would initiate opening of NRI account which involves NRO and NRE accounts. Furthermore, an NRO account can be opened from outside of India. It depends on the bank you choose.
- The payment of Tax Deducted at Source (TDS), a tax levied on the entire sale amount of the property, is an obligatory requisite. A competent chartered accountant would oversee this process.
When selling a property in India, it is crucial to remember that withdrawing the funds from the sale requires the seller to possess a permanent account. This account is known as a Permanent Account Number (PAN). PAN is issued by the Indian Income Tax Department and is mandatory for all taxpayers. This is mandated under Section 195 of the Income Tax Act, of 1961. It requires the buyer to deduct TDS from the sale price depending on age of property. The buyer then deposits the remaining sales funds in the seller’s account.
Once the TDS has been paid, the seller can apply to withdraw the remaining funds to their home country. This process is typically handled by the authorised dealer bank, who will review the necessary documents and ensure that all requirements are met.
Some of the documents required for the repatriation process include;
- The sale deed
- PAN card copy
- Form 15CA/Form 15CB
- An application in the specified format
It is important to note that the withdrawal process can be complicated, and it is recommended that sellers seek the help of a professional to ensure that all necessary documentation and compliance requirements are fulfilled. A professional can help the seller navigate the complex process and ensure that the repatriation is done promptly and efficiently.
In the next paragraphs we will elaborate more on the three components.
Indian Property PAN & TDS
PAN and TDS are interdependent because as per Section 195 of the Income Tax Act, 1961. A buyer must deduct TDS from the sale price and deposit it in the seller’s account. However, to do this, the seller must have a PAN, a unique identification number issued by the Indian Income Tax Department to all taxpayers.
The PAN helps the tax authorities identify the seller and ensure that the correct amount of TDS is deducted and deposited. Therefore, the seller must have a PAN to enable the buyer to deduct TDS at the applicable rate.
The seller considers the TDS deducted by the buyer as an advance tax payment. The seller can claim credit for this TDS while filing their income tax returns. This ensures that the seller pays the correct tax on the sale of their property.
In summary, the interdependence between PAN and TDS is crucial for ensuring that the seller pays the correct tax on the sale of their property and for facilitating the repatriation of funds to the seller’s home country.
Non-Resident Ordinary Account (NRO)
Here are some more detailed points on opening an NRO account for depositing sales proceeds:
1. If you are an NRI who wants to sell assets in India, opening an NRO account to deposit the sales proceeds is recommended.
2. An NRO account is a specific type of bank account that allows NRIs to manage their income earned in India, including rental property sale, income, dividends, and other earnings.
3. You can open an NRO account with any authorised Indian bank.
4. By opening an NRO account, you can quickly deposit and manage the sales proceeds hassle-free.
5. The account can be used for various transactions, including remittances, bill payments, and investments in India.
6. The interest earned on an NRO account is subject to taxation in India, and the bank may deduct TDS (Tax Deducted at Source) on the interest earned.
7. The account can be held jointly with another NRI or resident Indian.
8. To open an NRO account, You need to submit specific documents, including your passport, visa, PIO, and proof of address.
9. You can also opt for a Power of Attorney (POA) to manage your NRO account in India.
10. Opening an NRO account for depositing sales proceeds maybe a wise decision for NRIs who want to sell their assets in India.
As per the RBI regulations you will need to provide proof of Indian Origin in order to open an NRO account.
Tax Deducted At Source (TDS)
In Indian property sale, Tax Deducted at Source (TDS) is a type of tax that is deducted at the source of income. For foreign citizens who own property in India, the TDS rate varies based on the age of the property.
The TDS rates for property owned by foreign citizens range from 20% to 30% based on the age of the property. For properties that are less than 2 years old, the TDS rate is approximately 30%. While for properties that are more than 2 years old, the TDS rate is approximately 20%. This means that the TDS amount deducted from the property value will be higher for properties that are less than 2 years old.
It is important for foreign citizens to consider the age of their property when calculating their TDS, as it can significantly impact their tax liability. In addition, foreign citizens need to ensure that they comply with the tax regulations in India to avoid any penalties or legal issues. Understanding the TDS calculation process is crucial for foreign citizens who own property in India to ensure that they pay the correct amount of tax and avoid any legal issues.
Finally, we also consider why a Power of Attorney may be a useful tool for individuals who cannot travel to India frequently.
Power of Attorney In 2024
If you need someone to manage your income in India, a POA may be useful. There are several reasons why you might consider this, such as:
1. Convenience: If you live outside of India, it can be challenging to manage your income and financial affairs there. Authorising a power of attorney can make it easier to manage these matters from a distance.
2. Expertise: If you are not familiar with India’s legal and financial systems, it may be helpful to have someone with expertise in these areas handle your affairs.
3. Time-saving: Managing your income and financial affairs in India can be time-consuming. Authorising a power of attorney can save you time and allow you to focus on other important matters.
4. Flexibility: Depending on the terms of a power of attorney, you can give your agent broad or narrow powers to manage your income in India. This can allow you to tailor the arrangement to your specific needs.
However, authorising a POA and suitability will depend on the individual circumstances.
In summary, while the Indian property sale process can be multifaceted and requires compliance with various regulatory requirements, it is possible to streamline the process by initiating certain key components. These include obtaining a PAN card, acquiring an NRO account number, and engaging the services of competent professionals to facilitate the sale process. By taking these steps, one can ensure a smoother and more efficient property sale experience.
How Can We Help
Our firm may be able to assist in your Indian matters, depending on your circumstances. Please don’t hesitate to contact us for further information. If you need assistance, we may be able to help.