Are you an NRI selling property in India? Know your taxes
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Key Takeaways: If you are selling property in India, you are liable to pay capital gains tax. However, you can invest it in specific ways to reduce your tax liability. You can also repatriate the proceeds abroad but within limits. Our tax guide to selling property tells you all that you need to know.
Like many NRIs, you may have invested in real estate in India during the property boom. Now, you have a good offer from a buyer and you decide to sell it. One of the crucial things for you to consider is your tax liability.
Tax implications for NRIs selling property in India1
Your tax liability on a property sale will depend on how long you have held it. If you are selling a property that you have owned for more than two years, then you will incur a long term capital gains tax. For a property owned for less than two years, you must pay short term capital gains tax2. The tax rates are as follows:
- Long-term capital gains are taxed at 20%
- Short-term capital gains are taxed as per your income slab
Capital gains is the difference between your acquisition price and your sale price minus any expenses you may have incurred in making the sale (brokerage, stamp duty, registration charges, etc.).
Tax deducted at source (TDS)*
When a resident buys property from an NRI, she/he must deduct TDS at 20% if the property has been held for more than two years and at 30% if the property is being sold within two years. The deduction must include TDS plus surcharge, health and education cess3 .
Ready reckoner for LTCG TDS rates
- Properties valued less than INR 50 lakh: Total tax 20.8% (including surcharge and cess)
- Properties valued between INR 50 lakh and INR 1 crore: Total tax 22.88%
- Properties valued above INR 1 crore: Total tax 23.92%
W.e.f. FY 2018-19, the finance ministry has announced a higher surcharge on properties valued above INR 2 crore. The applicable LTCG TDS rates are 25% and 37% for properties valued above INR 2 crore and INR 5 crore respectively.
TDS at a lower rate
If tax deducted at source is more than your tax liability, then you can opt for a tax refund at the end of the year for the excess TDS. However, if you wish to avoid this cumbersome process, you can apply for a certificate that allows you to file for a lower TDS rate4 . Please note that you must apply before you execute the sale agreement. The assessing officer will determine the TDS after calculating the capital gains. This will put the money in your hands instantly instead of waiting for a refund.
Capital gains made through the sale of a property can be reinvested in India to reduce tax liabilities. If you invest the capital gains in buying another property within two years, then the profit generated from the sale is exempted from tax. Similarly, under section 54EC, you can invest the profit from the sale of property in Capital Gains Bonds within six months to get an exemption. These bonds offer an interest rate of around 5.75% p.a.* and have a lock-in of five years.5
Repatriation of funds
If you wish to repatriate the proceeds from the sale of a property, you will need to submit Forms 15CA and 15CB. While you can fill out and submit Form 15CA yourself, Form 15CB has to be signed and submitted by a chartered accountant. You can repatriate up to USD 1 million a year outside India.
Final Note: Several professionally managed firms cater to international clients and provide property management services. You can avail end-to-end services from these experienced professionals who can help with taxation, regulatory compliances and money transfers.
*TDS rates mentioned in this article are applicable as of April 2020 and will be subject to change as per changes in Indian Tax laws and regulations.
*TDS and interest rates mentioned in this article are applicable as of April 2020 and will be subject to change.
Disclaimer: This article has been shared purely from an information perspective and we recommend you conduct extensive research before proceeding.