Tax Implications for Non-Resident Indians (NRIs) Selling Property in India: NRI Legal Services in Delhi NCR

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“A lot of Non-Resident Indians NRIs invest their hard earned money in real estate or properties in India. However, these NRIs are unaware about the tax structure or the tax implications involved as the same sometimes varies from state to state. Therefore, the NRIs should always consult a good real estate attorney in India before making any investments and should duly understand the tax implications and tax liabilities. NRI legal services in India can be easily obtained by way of legal consultation online through a well experienced real estate attorney in India.”

If any person sells property in India, then that person is liable to pay tax on the capital gains, same rule is applicable on Non-Resident Indians (NRIs). Many NRIs invested in real estate during the property boom or already had property in India. NRI must borne in mind the tax liability which is to be imposed on them for selling their property in India. In this article, the tax implications & exemption from tax liability is discussed.

Tax Liability on Capital Gains
As we already know Non-Resident Indians who are selling their property which is situated in India have to pay tax on the Capital gains. The tax liability on NRIs depends on the type of capital gain. Capital gain means any gain or profit arises from the sale of capital assets. Property is capital asset and profit from its sale is ‘income’. So, tax on capital gain arising from sale of property is payable. Capital gains are of two types-
1. Long term capital gain
2. Short term capital gain
If a property is sold which is owned by the owner for less than two years, it would be deemed as short-term capital gain and on contrary, if a property which is owned for more than two years, then sale of that property is long term capital gain. We need to differentiate between the both because tax payable on long term capital gain is different from tax payable on short term capital gain. There is 20 % tax implication on Long-term capital gain (hereinafter referred as “LTCG”) and short-term capital gains are taxed as according to the individual ’s income slab rate.

Tax Deduced at Source (TDS)
The buyer of property sold by NRI is liable to deduct TDS. It means some amount will be deducted by buyer and that amount will be deposited with the income tax department by buyer. In case of long-term capital gain, a TDS of 20% and in case the property is being sold withing 2 years of purchase (shot-term capital gain), a TDS of 30% will be applicable. Surcharge and Cess is also levied in the above-mentioned amount. TDS applicable including surcharge and cess-
– If a property sale price is less than 50 lakhs, then TDS applicable will be 20.8%
– If a property sale price is between 50 lakhs to 1crores, then TDS applicable will be 22.88%
– If a property sale price is above 1crores, then TDS applicable will be 23.92%
TDS at a Lower Rate
If TDS is more than the tax liability imposed, then there is option for tax refund at the end of the year for the excess TDS. If the NRI wishes to avoid this beforehand. Then he/she can apply for certificate that permits to file for a lower rate TDS. It must be applied before the execution of sale agreement. The concerned officer will assess the TDS after calculating the capital gain and will refund the excess TDS instantly instead of waiting for end of year for refund.

Tax Exemption
NRIs can avail tax exemption under Section 54, 54F and 54EC of Income Tac Act.
Exemption under Section 54
The whole sum paid as LTCG tax could be claimed as refund under this Section, if the NRI invests an equal amount in purchase of another property. The point to be noted is only the profit made by the NRI have to be invested not the entire sale proceeds. Time span is 1 year before or 2 years post the sale of the previous property. NRIs are also allowed to invest in construction provided the construction work must be completed within 3 years. If the given time period is lapsed, then no exemption will be provided.
Exemption under Section 54F
NRI can exempt from tax on LTCG on any asset besides the residential property, by investing in a residential property in India provided that NRI should not sell it within 3 years of its purchase and that NRI shall not own more than 1 house property besides the new one and also nor should buy within a period of 2 years or construct within 3 years period any other residential house.
Exemption under Section 54EC
NRI can claim exemption LTCG by investing the amount in bonds of the National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC), within the six months of the date of sale on condition that these bonds must not be sold before the 5 years from the time of sale of the property.

Therefore, before buying or selling any property in India the NRI should always obtain online legal consultation from a reputed real estate attorney in India and should understand the tax structure and the tax compliances. Further, there are a lot of legal compliances for bringing in money within India and outside Indian and the same has to be duly fulfilled.

It is advisable if a NRI is selling property after the 2 years of its purchase, then must look into tax exemptions provisions provided under the Income Tax Act and accordingly can avail the tax exemption.
Authored By: Adv. Anant Sharma & Anjali Swami