Selling Real Estate in India as an NRI: A Comprehensive Guide

Are you an NRI planning to sell your real estate in India? Concerned about the operational and regulatory challenges involved? Don’t worry—it’s manageable with some preparation and knowledge.

Selling real estate as an NRI is quite similar to the process for resident Indians, with just a few additional requirements.

In this blog post, we’ll guide you through every detail of selling your property in India. But before diving into the "how," let’s first understand what types of properties NRIs can sell in India and to whom.

What Properties Can NRIs Sell in India?

As an NRI, you can sell your residential or commercial property in India to either a resident Indian, another NRI, or a Person of Indian Origin (PIO). You can also mortgage the property to a real estate dealer or a financial institution.

However, NRIs are not permitted to invest in agricultural land, farmhouses, or plantation properties. Any such property that you inherit can only be sold to resident Indians.

Most inherited properties have no restrictions on sales. However, selling property inherited from a person who is not of Indian origin may come with specific limitations.

Restrictions Around Selling Inherited Property in India

The process for selling inherited property in India generally follows the standard procedures for any other NRI property sale. However, there could be additional rules regarding the repatriation of funds.

According to the Foreign Exchange Management Act (FEMA) Section 6(5), proceeds from the sale of inherited property cannot be taken out of India without approval from the Reserve Bank of India (RBI). In such cases, seeking professional advice is crucial to navigate these regulatory requirements effectively.

How Can NRIs Sell Their Property in India?

A common concern for NRIs is, “What if I cannot be in India to close the sale?”

• The solution is straightforward: appoint a Power of Attorney (POA).

• You can sell your property in India either while residing abroad (through a POA) or by visiting India in person.

How Do NRIs Appoint a POA?

• A POA can be a close family member or friend authorized to act legally on your behalf to complete the sale transaction.

• The POA document must be notarized and attested by the Indian consulate in your country of residence. It should then be sent to the POA in India. Additionally, the document should be stamped and registered in India within three months of its execution.

Get Your Documents Ready

For a smooth sale process, ensure all necessary paperwork is in order. Here is a list of documents you will need to sell your property in India:

• Identity Proof: Passport or OCI card

• Address Proof: Indian address proof and current address proof

• NRO Bank Account

• PAN Card

• Title Deed

• Sale Agreement

• Encumbrance Certificate: A certificate showing the property has no legal dues

• Tax Receipts

• Passport Size Photos

• Loan Closure Certificate (if a loan was taken to acquire the property)

• POA Document (if selling through a POA)

Note: This list is not exhaustive; the required documents may vary depending on the property type and location.

Tax Implications for NRIs Selling Property in India

Selling property in India as an NRI can lead to tax implications, particularly concerning capital gains. Here are some key points to consider:

Tax Deducted at Source (TDS)

The buyer will deduct a certain percentage of the sale price as Tax Deducted at Source (TDS) and pay it to the Income Tax Department on your behalf. The TDS rate depends on the property's type, value, and your residential status.

For properties held over two years, TDS is 20%, while it is 30% for properties sold within two years. The Long-Term Capital Gains (LTCG) TDS rates, including surcharge and cess, are:

• Properties under Rs 50 lakh: 20.8%

• Properties between Rs 50 lakh and Rs 1 crore: 22.88%

• Properties above Rs 1 crore: 23.92%

• From FY 2018-19, a higher surcharge applies to properties above INR 2 crore:

• Properties above Rs 2 crore: 25%

• Properties above Rs 5 crore: 37%

• Capital Gains

You must pay capital gains tax if you sell property in India. The tax liability depends on the holding period—short-term or long-term capital gains.

If you sell the property after holding it for more than 2 years (previously 3 years), it is considered a long-term capital gain, taxed at 20%. For properties sold within 2 years, gains are short-term and taxed based on your applicable income tax slab rate.

If you inherit a property, the date of purchase by the original owner determines whether it is a long-term or short-term gain. The property's cost is deemed to be the cost to the previous owner.

How NRIs Can Save on Capital Gains Tax?

NRIs can claim exemptions under Sections 54, 54F, and 54EC for long-term capital gains from selling property in India.

Exemption Under Section 54

Under Section 54 of the Income Tax Act, NRIs can claim an exemption on long-term capital gains from selling a house property by investing the gains in a new property.

• The exemption is limited to the total capital gains.

• You can buy a new property one year before or two years after the sale or invest in an under-construction property to be completed within three years.

• You can only purchase or construct one property for tax exemption.

• Properties outside India are not eligible for this exemption.

• If the new property is sold within three years, the exemption is invalid.

• If you cannot invest the gains by the tax return filing deadline (usually July 31st), you can deposit the gains in a PSU bank or designated banks under the Capital Gains Account Scheme, 1988, to defer the immediate tax liability.

Exemption Under Section 54F

Under Section 54F, you can claim an exemption on long-term capital gains from selling any capital asset except a residential house property.

• You must purchase a new house property within one year before or two years after the transfer or construct one within three years.

• The new property must be in India and not sold within three years of purchase or construction.

• You should not own more than one house property in addition to the new house.

• If the entire amount is invested, the gains are fully exempt. Otherwise, the exemption is proportional to the investment made.

Exemption Under Section 54EC

Section 54EC allows NRIs to save tax on long-term capital gains by investing in specified bonds issued by entities such as the National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), Power Finance Corporation (PFC), and Indian Railways Finance Corporation (IRFC).

• You can invest up to Rs 50 lakh in a financial year.

• These bonds have a lock-in period of five years and can only be sold after that.

• Providing investment proof can help avoid TDS deduction.

Tax Implications in Your Country of Residence (USA)

For NRIs, a double taxation treaty with India ensures you don't have to pay taxes in both countries. However, you may need to report the sale to the Internal Revenue Service (IRS) even if no additional tax is due.

If you hold more than $10,000 in an overseas account at any point during the calendar year, you may need to submit an IRS Report of Foreign Bank and Financial Accounts (FBAR). Additionally, if you repatriate profits from the property sale, report this using IRS Form 3520.

Repatriation of Funds

Repatriation of sale proceeds is allowed for properties (excluding agricultural land, farmhouses, or plantation properties) if the following conditions are met:

• The property was acquired in compliance with FEMA or foreign exchange laws.

• Payment for the property was made using foreign exchange or funds held in NRE or FCNR accounts.

• Repatriation is restricted to two residential properties.

• To repatriate funds, complete and submit Forms 15CA and 15CB, the latter of which must be certified by a chartered accountant.

• Up to $1 million can be repatriated annually.

Conclusion

Selling real estate in India as an NRI involves navigating tax implications and complying with various regulations. Each sale is unique, and factors such as property value, holding period, and fund repatriation must be carefully considered. Consulting with an investment advisor or chartered accountant in India, along with a financial and tax advisor in your country of residence, can help you make informed decisions and minimize costs.

NRIs Selling Real Estate in India: Frequently Asked Questions (FAQs)

Can an NRI sell agricultural land in India?

No, NRIs cannot purchase agricultural land. However, if you owned it before your residential status changed or inherited it, you can sell it only to a resident Indian.

What happens if an NRI sells property in India?

You can sell residential or commercial properties in India. The sale proceeds are subject to TDS, and capital gains tax applies based on the holding period. You can also repatriate the proceeds to your home country.

How can NRIs avoid TDS on property sales?

To avoid or reduce TDS, submit a NIL/lower deduction certificate to the buyer before executing the sale agreement. If TDS exceeds your tax liability, you can claim a refund when filing taxes.

To which account can NRIs credit the property sale proceeds?

The proceeds should be credited to your Non-Resident Ordinary (NRO) account.

Can the sale proceeds from a property purchased as a resident Indian be remitted abroad?

Yes, provided the amount does not exceed $1 million in a financial year.

For more tailored advice, consult a tax pro at Taxagon.