When an NRI (Non-Resident Indian) sells property in India, specific tax rules apply. This guide covers the taxation process, available exemptions, and TDS on Sale of Property by NRI requirements. Here’s everything you need to know for NRIs selling property in India.
How are Gains from Property Sales in India Taxed for NRIs?
Gains from selling property in India are classified as either short-term capital gains or long-term capital gains, depending on the holding period of the property:
- Short-term gains (if the property is held for less than two years) are taxed at the applicable income tax rate slabs for NRIs.
- Long-term gains (if held for over two years) are taxed at 20% with indexation benefits.
How Much Tax is Payable?
- Short-term Capital Gains: Taxed as per the NRI’s income tax slab.
- Long-term Capital Gains: Taxed at 20% with indexation.
Thus, the effective TDS rate on the property sale by an NRI for long-term capital gains is as follows:
| Particular | Sale Value Less than 50 Lakhs | Sale Value 50 Lakhs to 1 Crore | Sale Value Above 1 Crore |
| Long-Term Capital Gains Tax | 20% | 20% | 20% |
| Add: Surcharge | Nil | 10% of Above | 15% of Above |
| Total Tax (Including Surcharge) | 20% | 22% | 23% |
| Add: Health & Education Cess | 4% of Above | 4% of Above | 4% of Above |
| Effective TDS Rate (Including Surcharge & Cess) | 20.8% | 22.88% | 23.92% |
Simplified Explanation of TDS and Surcharge Rules for NRIs Selling Property
For short-term capital gains (where the property was held for less than two years), surcharge and cess are added to the income tax rates as per the NRI’s income tax slab, similar to long-term capital gains. When an NRI sells property, the buyer must deduct TDS on the payment, even if it is an advance payment. The buyer is responsible for depositing the deducted TDS with the Income Tax Department, ensuring that the TDS is deducted from the payment made to the NRI. TDS must also be deducted on the property purchase from an NRI, regardless of whether the transaction value is below ₹50 lakhs.
How to Save Tax on Capital Gains?
NRIs have several options to save on taxes from capital gains:
Exemption under Section 54
If the NRI sells a residential property and reinvests the gains in another residential property in India within a specified timeframe, they may claim an exemption under Section 54. Key points include:
- Eligibility: Available only for capital gains from residential property sales.
- Reinvestment Requirement: You must purchase a new residential property either one year before or within two years after the sale or construct one within three years.
- Limit: Reinvestment in one property is allowed to claim exemption. Recent amendments allow exemption for two properties if the capital gain does not exceed ₹2 crores (this benefit can be used only once in a lifetime).
- Lock-in Period: The new property should not be sold within three years to retain the exemption.
- If unable to invest the capital gains by the filing date (31st July) of the next financial year, the NRI can deposit the gains in a Capital Gains Account Scheme, 1988. This allows the NRI to claim an exemption under Section 54 in their return and defer tax liability.
Exemption under Section 54EC
NRIs can claim exemption under Section 54EC by investing in specified bonds, such as those issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC). These bonds:
- Have a lock-in period and must be purchased within six months of the property sale.
- Are redeemable after five years and cannot be sold before the completion of five years from the date of sale.
- Allow a maximum investment of ₹50 lakhs per financial year. If capital gains exceed ₹50 lakhs, only gains up to this limit can be exempted.
Exemption under Section 54F
Section 54F allows NRIs to claim exemption on capital gains if the sale proceeds are invested in a new residential property. This exemption applies when there is a long-term capital gain (LTCG) from selling any capital asset other than a residential property. The requirements are:
- The NRI must buy one house property within one year before or two years after the sale or construct one within three years.
- The new property should be in India and must not be sold within three years of purchase or construction.
- The NRI should not own more than one other house (apart from the newly purchased one).
- The entire sale amount needs to be reinvested for full exemption. If only part is reinvested, exemption is granted proportionately.
- NRIs can also deposit proceeds in a Capital Gains Account Scheme (CGAS) if they cannot invest immediately.
How to Deduct TDS Amount?
The buyer must deduct TDS at the time of payment to the NRI, ensuring TDS Registration is completed. The buyer should obtain a TAN (Tax Deduction Account Number) to deduct TDS, depositing the amount under Section 195 of the Income Tax Act. A TDS certificate in Form No 16B should be issued to the NRI after filing the TDS Return within the specified period.
How to Save on TDS Deduction?
NRIs can apply for a Lower TDS Certificate in Form 13 if their capital gains tax liability is lower than the standard TDS rate. If granted, the buyer can deduct TDS at the lower rate specified in the certificate. The NRI seller can also claim a refund on TDS deducted if it exceeds the tax liability by filing an Income Tax Return (ITR) at the end of the financial year.
Consequences of Not Deducting TDS
If the buyer fails to deduct TDS, they may face penalties and interest charges from the Income Tax Department. The buyer also remains liable for the unpaid TDS amount.
Repatriation of Sale Proceeds by NRI Outside India
NRIs can repatriate property sale proceeds after paying applicable taxes, subject to RBI guidelines. This requires a Chartered Accountant’s certificate (Form 15CB) and submission of Form 15CA to the Income Tax Department.
By understanding these tax implications and utilizing available exemptions, NRIs can manage their tax obligations effectively when selling property in India.
Frequently Asked Questions (FAQs) on TDS for Property Sold by NRIs
- What is the TDS rate when an NRI sells property in India?
The TDS rate is 20% on long-term capital gains (held for more than two years) and 30% on short-term capital gains (held for less than two years). - Who is responsible for deducting TDS on property sale by an NRI?
The buyer is responsible for deducting TDS before paying the NRI seller. - Does the buyer need a TAN (Tax Deduction Account Number) to deduct TDS?
Yes, the buyer must obtain a TAN to deduct and deposit TDS. - Is TDS deducted on the entire sale consideration or just the capital gains?
TDS is usually deducted on the entire sale amount unless a Lower TDS Certificate specifies otherwise. - How can NRIs reduce TDS on property sales?
NRIs can apply for a Lower TDS Certificate if their actual tax liability is lower than the standard rate. - What documents does the buyer need to deduct TDS correctly?
The buyer needs the TAN, PAN details of both parties, property sale agreement, and payment details. - What happens if the buyer fails to deduct TDS?
Failure to deduct TDS can lead to penalties and interest charges from the Income Tax Department. - How does the NRI seller claim a refund for excess TDS deducted?
The NRI can file an Income Tax Return (ITR) to claim a refund for excess TDS. - How does the buyer deposit TDS with the government?
The buyer must deposit TDS through Form 26QB within 30 days of deduction and issue Form 16A to the seller. - Can NRIs claim exemptions to reduce taxable capital gains?
Yes, NRIs can claim exemptions under Sections 54, 54EC, or 54F for tax-saving investments or property reinvestment.
For expert guidance on TDS deductions and tax-saving strategies for NRIs selling property in India, contact ApkiReturn at +91 766 515 6000 or visit www.apkireturn.com.
