Legal Aspects For NRIs Selling Property In India
The recent times have seen many non-resident Indians (NRIs) selling their inherited or self-acquired properties after attaining citizenship of the new country.
This trend has gained momentum as increasingly it is being felt that holding on to real estate is not always a wise proposition, especially if you can't manage it. Instead of burdening their family and friends, they see more sense in encashing on the capital value of their inherited properties. Even then, the ways and means to remit the funds back into the new country of residence often create a lot of confusion.
There are three aspects to this scenario:
Taxation: NRIs who sell their property within three years of its purchase have to incur capital gains tax at 20 per cent.
In case of an inherited property, while computing the long-term capital gains, the cost to the previous owner (i.e. the person from whom the property is inherited) would be considered as the cost of purchase.
Although NRIs are subjected to a Tax Deducted at Source (TDS) of 20 per cent on the long-term capital gains, there are certain instances when an NRI can get a waiver. One such case would be if the NRI is planning to re-invest the capital gains in another property or in tax-exempt bonds.
If an NRI sells the property before three years of purchase, short-term capital gains tax is imposed at a TDS rate of 30 per cent. But, he can apply to the income tax authorities, from where he holds the PAN, for a tax exemption certificate under Section 195 of the Income Tax Act, along with the proof of reinvestment of capital gains.
An NRI gets two years' time to invest in another property and up to six months if he chooses to invest in bonds. If the NRI is planning to buy another house, the payment receipt or allotment letter needs to be produced and an affidavit is needed if capital gains bonds are bought.
Tax exemptions: In case an NRI sells a residential property after three years of purchase and reinvests the money in another residential property within two years from the date of sale, the profit generated is exempted to the extent of the cost of the new property. For example, if the capital gains is Rs 15 lakh but the new property costs Rs 10 lakh, the remaining Rs 5 lakh is treated as long-term capital gains. However, NRIs can't use the proceeds of the sale of property in India on a foreign property and still claim the exemption.
Section 54EC of the I-T Act states that if an NRI sells a residential property after three years and invests the amount of capital gains in bonds, he will be exempted from capital gains tax. However, the bonds will remain locked in for three years.
Repatriating proceeds: A general permission is given to NRIs and PIOs (persons of Indian origin) to repatriate the sale proceeds of property inherited from an Indian resident, subject to certain conditions. If these conditions are met, the NRI need not seek the Reserve Bank of India's (RBI) permission. However, if the NRI has inherited the property from a person who is not residing in India, he must seek specific permission from the central bank. The conditions to take such funds back are easy, i.e. the amount per financial year should not exceed $1 million, provided it is done through authorised dealers.