Sell NRI Property
The process of selling a property in India is more complicated compared to western countries. A non-resident Indian (NRI) can sell their residential or commercial property to either an Indian Citizen or another NRI. The same goes for any foreign national such as UK, USA or Canadian citizens who may have inherited Indian property and now wish to sell their Indian assets.
Prior approval of the Reserve Bank of India (RBI) is required if an NRI wishes to transfer their property to someone abroad. If an NRI or person of Indian origin (PIO) or overseas citizen of India (OCI) is unable to visit India, they can execute a Power of Attorney in favour of a trustworthy individual to sell the property on their behalf in their absence.
How do I sell my Indian property from abroad?
Depending on your circumstances, some of the steps you will undertake to sell your Indian property from abroad are:
- Conduct a comprehensive valuation of the property and determine its value, you can do this by hiring a professional individual or company;
- Execute a valid power of attorney authorising a trustworthy person to complete the transaction on your behalf;
- Open an NRE/NRO Bank account to receive the proceeds of the sale;
- Carry out all the necessary paperwork related to the sale of the property, such as a sale deed;
- Understand and pay the necessary taxes to avoid any penalties that may arise from unpaid taxes.
What documents are required for selling NRI property in India?
The documentary requirements for selling Indian property from abroad are as follows, however, depending on your situation, more documentation may be required:
- Power of attorney to sell the property;
- Identity Proof such as a passport;
- PAN Card: NRIs of select countries are given PAN numbers that have their foreign residence address;
- Tax Returns: If the NRI has been earning money from the property, tax returns will be required;
- Address Proof: Documents in support of address in India and abroad must be provided;
- Sale Deed: a sale deed is a legally binding agreement between the parties who are buying and selling the property;
- Documents From The Society: Documents from the society are needed to establish that the seller has no outstanding payments to the society;
- An occupation certificate proves that the flat has been occupied and the allotment letter bestows official authority on the owner of the property or flat;
- Encumbrance Certificate: a legal document that clarifies whether or not a particular property is free from legal or financial burdens.
What taxes does an NRI pay for selling their property in India?
Understanding the tax liabilities while selling an Indian property from abroad is vital. Miscalculated taxes will lead to fines and penalties being imposed on the seller and the buyer, therefore it is highly recommended that you seek assistance from a qualified professional to understand your tax liabilities before the sale. The Foreign Exchange Management Act (FEMA) 1999 decides how NRIs should be taxed including factors to be considered. Factors may include – transfer (sale) date for determining capital gains, agreement value for calculating profits and capital gains, transfer charges, legal charges and outstanding loans.
Tax Deducted at Source (TDS)
TDS is deducted at the time of making the payment to the NRI in other words, the buyer has to deduct the TDS. And information regarding the TDS including the payable rate should be included in the sale deed between the NRI seller and the buyer. TDS is applicable on the sale of immoveable property wherein the sale consideration of the property exceeds or is equal to Rupees Fifty Lakhs and the amount will vary on a case to case basis.
If the buyer fails to deduct the correct amount of TDS, the seller will be liable to pay accordingly. Therefore it is important to seek professional advice regarding this matter.
Capital Gains Tax
Any profit that arises from the sale of a ‘capital asset’ is a capital gain. This profit comes under the category ‘income’, and hence you will need to pay tax for that amount in the year in which the transfer of the capital asset takes place. This is called capital gains tax, which can be short-term or long-term.
Capital gains do not apply to an inherited property as there is no sale, only a transfer of ownership.
The Income Tax Act has specifically exempted assets received as gifts by way of an inheritance or will. However, if the person who inherited the asset decides to sell it, capital gains tax will be applicable.
If one is selling the property within 2 years of purchase, then short-term capital gains tax will be applicable and selling after 2 years makes the long-term capital gains tax applicable. Taxes on short-term capital gains are based on an individual’s income slab. Taxes on long-term capital gains are fixed at 20%. Capital gains are taxable in the year in which the property is transferred, irrespective of whether the sale payment has been received in full or not.
You can potentially save long-term capital gains tax by reinvesting capital gains In another property, by reinvesting sale proceeds in another property or by reinvesting funds in specified bonds by the government up to INR 50 lakhs.
Many countries such as the UK, USA or Canada tax the income of their residents regardless of where it originates from. While some provide partial or total exemption on capital gains arising from the sale of residential houses, others do not.
So, you need to be aware of the rules in your country of residence and whether it has a Double Taxation Avoidance Agreement (DTAA) with India. If you did not pay any capital taxes in India because of reinvesting your capital gains, you may still be liable to pay taxes in your country of residence.
Any tax exemptions that apply will depend on your circumstances and what you intend to do with the proceeds of the sale arising from the property sale. If an NRI sells their residence after three years from the date of purchase and reinvests the proceeds into residential land within two years from the date of sale, the profit generated is exempted.
If an NRI sells residential land after three years from the time of purchase and invests the profit in securities within six months from the date of sale, capital gains tax may not apply.
Repatriating money from an NRI property sale
As per FEMA rules, repatriation is restricted to the sale of up to two residential properties. The repatriated amount should also not exceed the sum paid for buying the property. And if you had taken a home loan, then the repatriation amount cannot exceed the loan repayment amount. Furthermore, if you have purchased it from an NRO account (using rupees) or inherited it from a resident Indian, it will be subject to the repatriation limit of one million dollars in a financial year. If you want to remit more, you need to seek permission from the RBI.
During the sale process, you will need to get evidence from a Chartered Accountant proving that the money has to be repatriated abroad. It is to verify that your money is from a legal source and all necessary taxes have been paid. Some banks might also ask for your sales agreement or the will in case of inheritance of property.
It is important to maintain complete and proper records of the entire transaction.
Selling Indian property: How the WF Team can help
Our team offers professional legal advice concerning your property sale in India. We also offer higher levels of assistance in certain select areas of India. To find out more, contact our team on 02087575751 or use our free assessment form and a member of our team will get in touch with you.
If you have any questions regarding any of our services, feel to reach out to our team.