Selling property in India by Non-Resident Indians (NRIs) – Income tax implications

A Non-Resident Indian (NRI) can only sell residential or commercial property in India to a person residing in India or to an NRI or a PIO (Person of Indian Origin). He can also transfer residential or commercial property to an Authorised dealer or housing finance institution in India through mortgage.

A person of Indian origin resident outside India does not require any permission to transfer any immovable property in India other than agricultural land/farm house/plantation property, by way of sale to a person resident in India.

A Non-Resident Indian (NRI) cannot transfer by way of mortgage his residential and commercial property in India to a party abroad. Prior approval of the Reserve Bank of India (RBI) is required for this purpose. He can sell his agricultural land, farm house or plantation property in India only to a person who is a resident of India and is an Indian citizen.

In other words, Non-Resident Indians (NRIs) who have sold house property which is situated in India have to pay tax on the Capital Gains. The tax that is payable on the gains depends on whether it is a short-term or a long-term capital gains. When a house property is sold, after a period of 2 years from the date it was owned, there is a long-term capital gain. In case it held for 2 years or less, there is a short-term capital gain. In case the property has been inherited, the date of purchase of the original owner for calculating whether it is a long-term or a short-term capital gain. In such a case the cost of the property shall be the cost to the previous owner.

Who is NRI

As per Finance Act, 2020, there is an amendment in Section 6 of the Income tax Act, 1961, for determining the residential status of an individual.

An individual, who is citizen of India, is said to be Non Resident if he does not satisfy any of the below conditions:

(a)    He is in India for a period of 182 days or more in the financial year; or

(b)   He is in India for 60 days or more during that financial year and has been in India for 365 days or more during 4 previous years immediately preceding the relevant financial year.

After an amendment by Finance Act, 2020, where the Total taxable income of such individual in India exceeds Rs.15,00,000, the reduced period of 120 days shall be applied, which means that he will be considered as Non Resident Indian if his period of stay is less than 120 days and Indian taxable Income is more than Rs.15,00 ,000/-

And if his income (Taxable Indian Income) is less than or up to Rs.15,00,000 during the financial year will continue to remain NRI, if the stay does not exceed 181 days, as was the case earlier. 

Who is not an NRI

(i)     Persons who go abroad for tourism, business promotion, training, medical treatment, sports or cultural activities;

(ii)    Indians or persons of Indian Origin residing in Nepal/Bhutan;

(iii)   Crew members working for Shipping/Airlines companies posted in India; are not considered as NRIs.

Capital Gain is accrued or received to Non Resident in India [Section 9(1)(i)]

Any capital gain, within the meaning of section 45 of the Income Tax Act, 1961, earned by a person by transfer of any capital asset situated in India, is deemed to accrue or arise in India.

If Non-Resident Indian (NRI) sells a capital asset which is located in India – could be NRI’s own or inherited property, the capital gains on such sale of assets is taxable in India for Non-Resident Indian (NRI).

For example, if an Individual who is citizen of India, has house property in India and he permanently moved out of India, being an NRI, he sold his house property situated in India. The sale proceeds from that house property after deducting Cost of Acquisition shall be taxable in the hands of NRI that any income received in India shall be taxable in the hands of NRI.

Capital gains tax for property sold by NRI

In case the transaction qualifies to attract long-term capital gains (LTCG), a tax rate of 20% will be applicable on the sale. If the transaction is considered as a STCG, 30% of the money earned as profit will have to be paid in taxes.

Computation of Long Term Capital Gain

Particulars	Amount
Sales Consideration	XXXXX
Less: Brokerage/Commission	(XXX)
Less: Indexed Cost of Acquisition	(XXXX)
Less: Indexed Cost of Improvement	(XXXX)
Exemptions provided under section 54, 54EC, 54F	(XXXX)
Long term Capital Gain	XXXXX

 

Indexation benefit available to NRI on sale of property only for LTCA

Indexation benefit as per 2^nd proviso to section 48 is available only for LTCA.) As per section 112, long term capital gain arising to NRI shall be taxable in India @ 20% plus surcharge (if applicable) plus health and education cess @4%.

Exemption for NRIs selling property

While exemptions are available to NRI sellers under various sections of the IT law, they can claim rebates only on their LTCG liability.

[1]   Exemption on sale of House Property on Purchase of another House Property [Section 54]

When the capital gain on house property is invested to purchase any other house property in India or constructed house property, then exemption shall be limit to the capital gain on sale (if the purchase of house property is higher than the amount of capital gain). The exemption on two house properties will be allowed once in a lifetime of a taxpayer, provided the capital gain do not exceed Rs.2 crores.

       TERMS AND CONDITIONS FOR AVAILING THIS BENEFIT

(i)        The asset transferred should be a long-term capital asset, being a residential house property

(ii)      The new property can be purchased either in 1 year before the sale or 2 years after the sale of the  

property.

(iii)    The gains can also be invested in the construction of a property, but construction must be  

completed within three years from the date of sale.

(iv)    This exemption can be taken back if this new property is sold within 3 years of its  

purchase/completion of construction.

(v)      From the assessment year 2014-15, it was put forth that only one house property can be purchased or constructed from the capital gains, to claim exemption under Section 54.

(vi)    From the assessment year 2015-16, the new house property must be situated in India, for the NRI seller to claim the rebate. NRIs cannot invest the proceeds on the sale of a property in India,  in a foreign property.

(vii)   The rebate would stand retracted if the new property is sold within three years of its purchase.

(viii)   Exemption under section 54 will be lower of following :

Amount of capital gains arising on transfer of residential house; or Amount invested in purchase/construction of new residential house property [including the amount deposited in Capital Gains Deposit Account Scheme 

[2]  Exemption on Sale of House Property on Reinvesting in Specific Bonds

      [Section 54EC]

Under this section, if an NRI sells a long-term asset and invests the amount of capital gains in bonds of the NHAI and REC, within six months of the date of sale, they will be exempt from capital gains tax. The bonds will remain locked in for a period of five years.

TERMS AND CONDITIONS FOR AVAILING THIS BENEFIT

(i)        To avail the tax-exemption the investment must be made within 6 months of the date of sale of immovable property.

(ii)      Such investment can be redeemed only after 5 years.

(iii)    The exemption on investment is allowed only against long term capital gains on sale of immovable property (i.e. sale of land or building).

(iv)    The exemption is available up to a maximum amount of Rs 50,00,000 in a financial year

 

[3]  Exemption is available towards the capital gain arisen on the transfer of any long term capital asset other than a residential house [Section 54F]

It is available when there is a long term capital gain on the sale of any capital asset other than a residential house property.

TERMS AND CONDITIONS FOR AVAILING THIS BENEFIT

(i)           To claim this exemption, the NRI has to purchase one house property, within one year before the date of transfer or 2 years after the date of transfer or construct one house property within 3 years after the date of transfer of the capital asset.

(ii)         This new house property must be situated in India and should not be sold within 3 years of its purchase or construction.

(iii)       the NRI should not own more than one house property (besides the new house)

(iv)       the entire sale receipt is required to be invested. If the entire sale receipt is invested then the capital gains are fully exempt otherwise the exemption is allowed proportionately.

 

Benefit of basic exemption limit is not available to NRI, if only income he is earning in India is Long term capital gain

Non-Resident Indians (NRIs) cannot adjust their taxable capital gains against basic exemption limit (i.e. Rs. 2,50,000/- for assessment year 2022-23). If a Non-Resident Indian (NRI) earns Rs. 5,00,000/- capital gains and no other income, the full amount is taxed at the applicable rate. He cannot adjust this income against the basic exemption limit of Rs. 2,50,000/-.

 

TDS on sale of property by NRIs [Section 195]

Buyer should first obtain TAN under section 203A of the Income Tax Act, 1961 before deducting TDS. TAN can be obtained by filling up the Form 49B.

The amount to be deducted would be depend on the residential status of the seller. The residential status of the buyer would not be considered and only the residential status of the seller would be considered for computing the amount of TDS to be deducted.

TDS must be deducted at the time of making the Sales consideration payment to the NRI. The information about the TDS being deducted and the rate at which it was deducted should be mentioned in the sale deed between the NRI seller and the buyer.

Rate of TDS on Sale of Property by NRI

When a resident Indian purchases a property from an NRI, then the buyer is liable to deduct TDS at 20% on long term capital gains (LTCG) and at 30% on Short Term Capital Gains.

Nature of Capital Gains	Description	TDS Rate on Sale of Property by NRI
Long Term Capital Gains	Property held by the NRI for a period of more than 24 months immediately preceding the date of its transfer.	20%
Short Term Capital Gains	Property held by the NRI for a period of not more than 24 months immediately preceding the date of its transfer	30%

Surcharge and Cess would also be levied on the above amount.

KEY NOTE

TDS on purchase of Property from NRI is required to be deducted irrespective of the Transaction Value of the Property. Even if the value of property is less than Rs. 50 Lakhs, this TDS is required to be deducted.

 

TDS of 1% under section 194IA is not applicable if the seller is an NRI

TDS of 1% under section 194IA is not applicable if the seller is an NRI. TDS under section 194IA is only applicable for resident Indian sellers.

TDS at a lower rate/NIL Rate [Section 197]

NRI can apply under section 197 to Income Tax Department in the Form 13 online on Traces portal that Capital Gains Tax is taxable at effective lower/Nil rate of tax in case their tax deducted at source is more than tax liability due to indexed cost of acquisition /cost of improvement/Exemption benefit availed etc.  Then Buyer of property would deduct TDS at such lower rate/Nil rate. Please note that you must apply before you execute the sale agreement. The Assessing Officer will determine the TDS after calculating the capital gains.

TDS is deducted on total consideration value

For NRI property, a buyer should deduct TDS of 20% on total consideration value. The rate of TDS as explained is applicable until unless NRI seller produces Nil/Lower Tax Deduction or Tax exemption certificate issued by Income Tax department. If the seller is incurring a capital loss, in such cases, an NRI seller can produce NIL deduction certificate.

Due date of deposit of TDS

The TDS so deducted by the buyer shall be deposited with the Income Tax Department within 7 days from the end of the month in which the TDS has been deducted. For example: If TDS is deducted in the month of June, then the TDS should be deposited with the Income Tax Department on or before 7th July.

This TDS is required to be deposited along with Challan No./ ITNS 281 and can be deposited online as well as through various bank branches. TDS can be deposited online through this link – https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

Furnishing of a TDS Return by Buyer of Property from NRI

After the deposit of TDS, the buyer is required to furnish a TDS Return. This TDS Return is required to be furnished in Form 27Q (with the TAN of Buyer) and is required to be furnished separately for each quarter in which the TDS has been deducted. This TDS Return is required to be deposited within 31 days from the end of the quarter in which the TDS has been deducted. (Recommended Read: Procedure for filing TDS Return).

After the deposit of TDS and filing of TDS Return, the buyer is also required to furnish Form 16A to the seller of property.

KEY NOTE

Form 26QB is applicable in case of Seller of Property is Resident in India. (TDS @1% in case of Sales Consideration exceeding Rs. 50 Lakhs)

Special Power of Attorney (SPOA) Holder

It is always advisable that during the sale of NRI property the NRI seller should be physically present in India. Sometimes it is not possible due to unavoidable circumstances. In such cases, A Special Power of Attorney(SPOA) is executed in favour of a person present in India. Typically SPOA holder is a relative of an NRI Seller. A power of attorney is called Special Power of Attorney if it is executed for a particular purpose as the sale of the property. A General Power of Attorney is multi-purpose like authorization to carry out any financial transaction in India. POA, GPOA and SPOA are used interchangeably.

In the case of NRI property, it is preferred that POA should be SPOA i.e. executed only for the purpose of sale of NRI property. The SPOA should specify property details and also the complete the intent of fraud, avoid TDS, family dispute, etc. For an NRI property, the payment should be made only to the NRI Seller in his/her bank account. SPOA holder is only a representative of NRI seller to execute the NRI property transaction. SPOA holder is not the beneficiary of the property transaction.

Payment in NRO/NRE/FCNR account

The sale proceed from NRI property can be deposited by the buyer in NRO/NRE/FCNR account as the case may be. All the cheques/DD/Banker’s cheque should mention the bank and account no of the seller as recorded in sale deed.

Tax Deduction and Collection Account (TAN)

There are a lot of compliances to be taken care of when buying a property from a NRI. Firstly, the buyer should have a TAN No. for deduction of TDS. TAN No. is not required in case the property is purchased from a Resident Indian but is mandatory in case the property is purchased from a Non Resident Indian.

Under section 195, TDS can be deducted only after obtaining the TAN. Only the buyer is required to have this TAN No. and not the seller. In case the buyer does not have the TAN No., he should apply for the same before deduction of TDS. In case there are 2 buyers, both of them would be required to apply for a TAN No. The TDS should be deducted and deposited by all the buyers in the proportion of ownership in the property. Therefore, all buyers require TAN for same.

KEY NOTE

NRI does need aadhar to sell property.

Payment in case of Joint Sellers

In the case of joint sellers, the payment should be made in the proportion of ownership in the property. If both sellers are NRI, then one of them cannot receive payment on behalf of other. For each of the NRI seller, same compliance process is applicable.

 

Repatriation of funds

In the event of sale of immovable property other than agricultural land/farm house/plantation property in India by a person resident outside India, who is a citizen of India, or a person of Indian origin, the authorised dealer may allow repatriation of the sale proceeds outside India. Thus, if NRI wish to repatriate the proceeds from the sale of a property, he will need to submit Forms 15CA and 15CB. While NRI can fill out and submit Form 15CA. Documenting proof is required for transferring money on sale of property. The first step is to get a certificate from a Chartered Accountant (CA) in India. Once NRI has the CA certificate along with ‘Form 15CB’, the next step involves taking the signed undertaking along with the CA certificate on Form 15CB, to the bank where you have your NRO account. Your bank will transfer your money abroad.

Conditions

(a)   If the property was purchased while you were a resident of India, then the sale proceeds must be credited to the NRO account. You can repatriate up to USD 1 million per calendar year from your NRO Account (including all other capital transactions), provided you have paid all taxes due.

(b)   If the property was purchased while you were a non-resident, the amount to be repatriated will follow these limits:

(i)    If you purchased a property by taking a home loan, then repatriation cannot exceed the amount of loan repayment that has been done using foreign inward remittances or debit to NRE/FCNR Accounts.

(ii)   If you purchased using funds lying in your Non-Resident External (NRE) Account, then the repatriation cannot exceed the foreign exchange equivalent, as on date of purchase, of the amount paid through NRE Account.

(iii)  If you purchased the property using balance in your NRO account, then the sale proceeds must be credited to your NRO account and you can repatriate to the extent of USD 1 million (including all other capital account transactions).

(iv)  If you purchased using funds in the Foreign Currency Non- Resident (FCNR) Account, then the repatriation cannot exceed the amount paid through this account.

(v)   If you purchased by remitting foreign exchange to India through normal banking channels, then the repatriation cannot exceed the amount that you remitted.

(vi)  In all these cases, the balance sale proceeds can be credited to the NRO account and you will be able to repatriate up to USD 1 million per calendar year (including all other capital account transactions).

(vii) In all cases, repatriation is restricted to sale of two residential properties.