Rules for selling immovable property in India and repatriation of sale proceeds

Rules for selling immovable property in India and repatriation of sale proceeds (1)

Real Estate investment and later selling property acquired in India by NRIs have always been a significant area inviting many queries. RBI governs sale and purchase of property by NRIs under FEMA (Foreign Exchange Management Act), 1999. RBI grants general Permission for property transactions by NRIs in India, and in some cases, specific permission of RBI is required. The rules and regulations have been simplified and made investor friendly

NRIs may want to sell the property as it is difficult to maintain if there is no plan to visit India or rent out the same and burden their family friends for payment of property tax, maintenance charges and other municipal dues

A Canadian Citizen who had inherited a property in India wanted to sell his property here in India and repatriate the sale proceeds. We answered the queries as follows:

Read: Sale of property in India by NRIs

Which property can be sold and to whom

  • Any property can be sold to a resident Indian – residential or commercial whether purchased, inherited or gifted.
  • In case the buyer is NRI – any property except agricultural land, plantation property and farmhouse.

Repatriation – It is a vast topic, but here we are confining ourselves to repatriation of sale proceeds only.

Sale proceeds can be legally and safely remitted through proper banking channels. Asset bought in India can be sold if they are purchased confirming to all the rules and regulations of foreign exchange. Once the property is sold, the next step is to repatriate the funds abroad:

If inherited/gifted -property is sold

  • The sale amount is deposited in NRO account. Repatriation is allowed up to USD One million per financial year. If remittance increases US dollar one million in a financial year, permission of RBI is required.
  • If the property has been inherited from a person residing outside India, special permission of RBI is needed.
  • NRIs can acquire agricultural land in India only through inheritance, and the same can be sold only to a resident Indian.

If the purchased property is sold:

a. The property was purchased while being a resident Indian

  • The sale proceeds are credited to NRO account and remittance from NRO account is allowed up to USD One million in a financial year after payment of tax.
  • The repatriation, in this case, is allowed only if the property is held for 10 years. If not, the sale proceeds are held in NRO account to complete 10 years.

Read: Can you sell your share of an Inherited Property?

b. The property was purchased as NRI

  • If the property was purchased using money resources in India (loan from bank or family friends) – sale proceeds are credited to NRO account. Repatriation limit is the same as in point a. Permission from RBI is required if remittance is more than that.
  • If the property was purchased on loan, repatriation is allowed up to the loan repayment amount made through NRE/FCNR accounts or remittance of foreign currency through banking channels.
  • If the property was purchased using foreign currency funds from NRE /FCNR account, the maximum amount of repatriation could be the foreign currency equivalent of the amount paid for the purchase.

In such case, repatriation of the entire principal amount is done without any restriction subject to the condition of repatriation of two residential properties only — no limit for commercial properties. Capital gains/profits are deposited in NRO account and are repatriated subject to condition of USD one million per financial year.

The repatriation limit applies to one person per financial year.

Read: Property rights of daughters Under Hindu Law in India

Documents required for repatriation of sale proceeds:

  • Certificate from Chartered Accountant – Form 15 CB
  • Certificate from income tax department – Form 15 CA
  • Application in a bank for foreign exchange
  • Proof of inheritance in case of sale of inherited property
  • Document proving sale

It is always advisable to hire a lawyer to ensure proper documentation and smooth repatriation of sale proceeds.

Before you plan to take away inheritance money from India

inheritance money

What happens if I transfer my inheritance money abroad?

When you transfer your inheritance from India, you must pay inheritance tax and other taxes in the country you live in. Different countries have various laws, so it is important to check them out because you might end up paying for expensive fines or even a criminal liability.

India also has rules for transferring Indian income from the country (this means repatriation of funds).

Repatriation of Indian funds

If you are a non-resident, you must deposit any income that you make in India (including inheritance money) in a non-resident Ordinary account.

This type of account does not allow funds to be freely transferred from the country. You have to ask your bank to do this for you. You will also need the following documents:

  1. Two copies of the certificate of information, also known as Form 15CB, have been completed and signed by a chartered accountant.
  2. Form 15CA (you need information from Form 15CB to complete this);
  3. Form A2 (Your bank should give you a copy of this); and
  4. Application for foreign trade (your bank should also give you a copy of it).

You can transfer up to US$1 million per fiscal year after taxes. The financial year lasts from April to March.

Transfer of inheritance money to the UK

The United Kingdom is currently the only country with which India has an agreement (contract) specifically on inheritance tax.

According to this contract, whether you must pay the UK inheritance tax depends on where the deceased was domiciled at the event of death. In the simplest, your domicile is the country that you consider as your permanent home.

You only have to pay the UK inheritance tax if the deceased was domiciled in the UK at the time of death. This is currently set at 40%, but there are several exemptions and deductions you can make.

Transfer of inheritance money to the USA

You only have to pay the US inheritance tax if the deceased was a US citizen, citizen or green card holder. However, you must still report your inheritance to the IRS by submitting Form 3520 along with your annual tax return.

An income from your inheritance will be taxed in the US according to US regulations. This adds dividends, interest, and capital gains. You can claim foreign tax credit for all amounts you have already paid in India.

Transferring inheritance money to Australia

Australia has no inheritance tax. However, you still have to report your inheritance to the tax authorities. In Australia, you need to explain all foreign assets more than AUD$ 50,000 to your tax return every year. In addition, as a resident, you are taxed on your worldwide income. Any income your Indian inheritance generates will count towards your Australian income tax liability.