Selling a property in India can be challenging, especially if you are a Non-Resident Indian (NRI). Apart from the usual sale formalities, NRIs need to understand specific tax implications, exemptions, and legal requirements associated with property transactions. Infinity Housing explains what you need to know to navigate the sale smoothly.
1. To Whom Can You Sell Your Property?
As an NRI, you can sell your property to:
- Another NRI
- A person residing in India
- A Person of Indian Origin (PIO)
Important: Agricultural land can only be sold to a resident Indian citizen.
2. Tax Implications Regarding Capital Gains
The tax liability depends on how long you have owned the property:
| Holding Period | Tax Type | Rate |
|---|---|---|
| Less than 2 years | Short-Term Capital Gains (STCG) | As per income slab |
| More than 2 years | Long-Term Capital Gains (LTCG) | 20% |
Calculation of Capital Gains:
Capital gain = Sale Price – (Cost of Acquisition + Cost of Improvement + Sale Expenses)
Key points:
- Indexation of acquisition and improvement costs is allowed for LTCG.
- For inherited property, the original owner’s acquisition date is used to determine short-term or long-term gains.
3. Tax Implications Regarding TDS (Tax Deducted at Source)
When a resident Indian buys property from an NRI:
- TDS for property held ≤ 2 years: 30%
- TDS for property held > 2 years: 20%
Additional charges: Surcharge + Education & Health Cess
Example TDS Rates for Long-Term Capital Assets:
| Property Value | Total TDS + Surcharge + Cess |
|---|---|
| < Rs 50 lakh | 20.8% |
| Rs 50 lakh – Rs 1 crore | 22.88% |
| Rs 1 crore – Rs 2 crore | 23.92% |
| > Rs 2 crore | 25% |
| > Rs 5 crore | 37% |
Note:
- TDS is calculated on entire sale proceeds, whereas capital gains tax is charged only on the gains.
- NRIs can claim a refund of excess TDS from the Income Tax Department after filing their return.
Illustration:
Mr. X sells a property for Rs 3 crore after 6 years of ownership. Indexed cost of acquisition = Rs 1 crore.
- LTCG = 3,00,00,000 – 1,00,00,000 = Rs 2 crore
- LTCG Tax = Rs 2,00,00,000 × 20% = Rs 40 lakh
- Buyer deducts TDS at 25% of sale price = Rs 75 lakh
- Amount received by Mr. X = Rs 2.25 crore
- Excess TDS locked with IT Dept = Rs 35 lakh → refundable
4. How to Apply for a Lower/NIL TDS Certificate
Under Section 197 of the Income Tax Act, 1961, NRIs can request a lower or NIL TDS certificate by filing Form 13 (online or offline, depending on the state).
- Submit the certificate to the buyer.
- The buyer deducts TDS at the reduced rate, avoiding funds being locked for long periods.
5. Exemptions on Capital Gains Tax
NRIs can reduce capital gains tax by reinvesting the proceeds in India:
- Purchase another property:
- Buy within 1 year before or 2 years after the sale for exemption under Section 54.
- Invest in Capital Gains Bonds:
- Under Section 54EC, invest within 6 months of the sale to claim exemption.
Tip: Always consult a chartered accountant or lawyer to handle tax and legal compliance, especially for international transactions.
Frequently Asked Questions (FAQs)
- Bonds issued by National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC).
- Investment limit: Up to Rs 50 lakh per financial year.
- Lock-in period: 5 years.
- Interest is typically around 5–6% per annum (tax-free), depending on the bond issuer.
- The principal investment is exempt from capital gains tax, but interest earned may be taxable.
Infinity Housing advises NRIs to plan tax and TDS strategy carefully and consult professionals before selling property in India. This ensures smoother transactions, legal compliance, and optimal tax benefits.
