The current development in the Real Estate Industry of India has prompted Non-Resident Indians (NRIs) into selling the properties they have in India to benefit from the hike in the land prices. However, NRIs must keep in mind the clauses of the Indian tax laws before they sell their property to ensure a smooth transaction and avail maximum benefits.
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Points to Remember for an NRI while Selling Property in India
- An NRI can only sell residential and commercial property in India to a person residing in India or an NRI or a PIO (Person of Indian Origin).
- An NRI can also sell under extended license his agricultural land/plantation property/farm house in India only to an individual who is a resident Indian and is also an Indian citizen.
- An NRI can also assign his/her residential or commercial property to a licensed dealer or housing finance institution in India through contract.
- An NRI should not transfer their residential and commercial property in India through transfer to someone abroad, as prior approval of the Reserve Bank of India (RBI) is obligated for this purpose.
- If a property acquired out of rupee resources, that is, income earned in rupees, or the home loan is paid by a relative who is a resident of India, the amount must be charged to the NRO account.
- If an NRI is unable to visit India, he/she can sell the property by issuing Special Power of Attorney to someone he/she considers trustworthy.
Tax Liabilities
Selling of the property as it is in the case of purchase also attracts tax liabilities. For NRIs, Foreign Exchange Management Act (FEMA) 1999 decides the tax implications, and the factors that need to be considered. Things such as Transfer (sale) date for determining capital gains; agreement value for calculating profits and capital gains, transfer charges, legal charges and outstanding loans.
Capital Gains
If an NRI sells his/her house within three years from the date of purchase and makes a profit, then he/she is supposed to pay short-term capital gains tax at the regular rate fit as per his/her tax classification.
However, if the sale happens after three years of the purchase, then he/she has to pay capital gains tax as per the norms.
Repatriate Profits
- After the sale of property, the NRI may repatriate the sale yields of residential or commercial property in India but must keep in mind that the repatriation of sales is limited to only two properties.
- The repatriated amount should also ideally not exceed the sum paid for buying the property, either in foreign exchange received from the Non-Resident account, nor should it overshoot the foreign currency equivalent as on the day of payment.
- Today, remittance of funds from the selling of property is simple and hassle-free for the benefit of NRIs.
Tax Exemptions
- If an NRI sells a residential estate after three years from the date of purchase and reinvests the proceeds into another residential land within two years from the date of sale, the profit generated is exempted.
- If an NRI sells a residential land after three years from the time of purchase and invests the amount of capital gains in securities (REC & NHAI) within the span of six months (date of sale), he/she will be spared from capital gain tax.
Nonetheless, an NRI must function as per the guidelines mentioned under FEMA Act of, 1999, and he/she must also ensure that they are well guided by a legal expert in matters of selling property in India and must also be vigilant of fake property dealers.