Taxation rules for Non Resident Indians (NRI’s) selling property in India – What you need to know?

When an NRI (Non-Resident Indian) sells a property in India, the buyer is required to deduct TDS (Tax Deducted at Source) at the rate of 20% of the sale value if the property was held for more than 24 months. In case the property is held for less than 24 months the TDS rate applicable is 30%.  In addition, surcharge and cess will be added to this amount. The buyer must deposit this TDS with the Income Tax Department and provide proof of the TDS deduction to the NRI seller. The seller should also ensure that the buyer had filed a quarterly TDS return after the end of the quarter in which the Tds payment is made. The NRI seller can also file Form 13 with the Income Tax Department to request a reduction in the TDS rate.

Once the sales proceeds are received after reduction of required TDS in Your NRO account you may able to repatriate the proceeds to your country of residence. But for transferring the funds you must obtain 15CB certification from a chartered accountant. Once you submit 15CA and 15CB to the bank, it will enable the bank to transfer the funds to your country of residence.

Even though, TDS has been deducted it is our obligation to file tax return in India. If one is selling property within two years of purchase the gain is considered as short-term capital gain and taxes on short term capital gain are based on Individual tax slab. If one is selling property after two years of purchase the gain is considered as long-term capital gain and taxes are fixed at 20%. In case the property has been inherited, remember to consider the date of purchase of the original owner for calculating whether it’s 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.

A smart approach to minimize capital gains tax after selling a property for profit by NRI is to reinvest the earnings in another property. The profit can be utilized for purchasing a residential property, with the condition that the new property must be acquired within two years from the sale date, or three years if it is to be constructed. Additionally, investors have the option to channel their capital gains into Capital Gains bonds issued by NHAI and Rural Electrification Corp. However, it is important to note that the maximum investment allowed in these bonds is Rs 50 lakh per seller.

In conclusion, Non-Resident Indians (NRIs) contemplating the sale of property in India must navigate various taxation rules and procedures to ensure a smooth transaction. TDS calculation is a crucial aspect, as the buyer is required to deduct TDS at a rate of 20% for properties held over 24 months. It’s worth noting that if the NRI files an income tax return before the due date, they may be eligible for a substantial refund due to the 20% TDS calculation based on the sale value. NRIs should also obtain 15CB certification from a chartered accountant to repatriate proceeds to their country of residence. Understanding capital gain calculation is essential, with taxes varying based on holding period and property inheritance. To minimize tax liabilities, NRIs can consider reinvesting profits into another property or capital gains bonds, adhering to specified timelines and investment limits. By familiarizing themselves with these regulations and employing strategic approaches, NRIs can effectively manage their tax obligations when selling property in India

Filing income tax returns in India is relatively straightforward and can be done online, making it easy for non-resident Indians to complete the process without needing to be physically present in India. Non-residents can file their own returns or work with a tax consultant for assistance, at a reasonable cost. It is important to consult with a tax professional to ensure proper compliance and to avoid any financial losses.