Are you a non-resident Indian (NRI) who has recently sold or intends to do so in the future? You should be aware of the effects on your income tax if you responded "yes."
You must follow specific income tax laws and rates when selling your home in India as an NRI.
In this post, we'll go over all the details you should be aware of regarding income tax on non-resident Indians who sell real estate there.
How much tax is payable?
Capital gains are any profits or gains achieved when a non-resident Indian (NRI) sells a home in India.
The Income Tax Act oversees capital gains taxes, and NRIs are liable to differing tax rates based on a variety of variables. The capital gains tax on NRI sales of personal land is calculated as follows:
1. Long-term Capital Gains Tax
Long-term capital gains are the profits made when non-resident Indians( NRIs) sell a residential property in India that they have owned for more than two years.
The following procedure is used to determine the long-term capital gains tax that NRIs are subject to on such property sales:
The gains are subject to a set 20% tax rate. As a result, 20% of the sale's profits will be subject to tax obligations.
However, NRIs may be able to lower their tax burden by looking into the Income Tax Act's Sections 54 and 54F exemptions. If NRIs meet certain requirements and conditions, these sections offer provisions that enable them to request specific exemptions.
2. Short-term Capital Gains Tax
A profit from the sale of personal or investment property held for at least a year is referred to as a short-term gain.
Your income tax rate, or ordinary income, is applied to these gains. It is calculated as follows.
- The profits boost the NRI's overall yearly income.
- The entire income is then taxed using the NRI income tax slab rates.
TDS?
The buyer must deduct TDS at a 20% rate when an NRI sells the property. A 30% TDS will be applied if the property is sold before the purchase date has been three years ago.
How can NRI save the tax burden on capital gains?
NRIs are qualified to request exemptions under Sections 54EC and 54 for long-term capital gains from the sale of residential property.
1. Reinvest in a New Property
Reinvesting capital gains obtained from the sale of a house property in another property is one of the most efficient strategies to reduce tax on capital gains.
According to Indian income tax legislation, NRIs can claim tax exemption on capital gains if they invest the profits from the sale of a home property in another house property within a certain term. Section 54 of the Income Tax Act of 1961 provides for this exemption.
Section 54 allows NRIs to seek an exemption on the whole capital gain if the funds are invested in another residential property within two years of the original property's selling date.
If the NRI is unable to invest the whole amount, it can still claim a partial capital gains exemption.
2. Purchase Capital Gains Bonds
By purchasing Capital Gains Bonds issued by the National Highway Authority of India( NHAI) or the Rural Electrification Corporation( REC), NRIs may be able to avoid paying capital gains taxes.
NRIs can claim tax exemption on capital gains under Section 54EC of the Income Tax Act if they invest in these bonds within six months after the sale of the first property. The maximum investment for an NRI is Rs. In these bonds, 50 lakhs.
3. Deductions for Expenses Incurred
NRIs may also deduct costs like brokerage fees, stamp duty, and legal fees incurred during a home's sale.
The capital gain and tax burden are reduced by deducting these expenses from the sale price.
4. Keep Track of Your Improvement Expenses
If an NRI has made modifications to the residential property, such as remodeling or repair work, they can deduct these costs from the capital gain.
However, if necessary, keeping track of these costs and submitting proof to income tax authorities is critical.
5. Transfer the assets to family members.
NRIs could reduce capital gains tax by transferring property to family members.
The NRI can lessen their tax obligation by transferring property ownership to a family member in a lower tax band.
However, it is crucial to remember that this transfer should be done as a gift rather than a sale to minimize any tax repercussions.
6. Set Off Capital Losses
NRIs can also offset capital gains with capital losses to decrease their tax obligation. If an NRI suffers capital losses in the same fiscal year, they can offset these losses against capital gains from the sale of a home property.
If the capital losses exceed the capital profits, the NRI can carry the losses forward to the next fiscal year and offset them against future capital gains.
Required Documents for Selling an NRI-Owned Property in India
A considerable amount of paperwork must be submitted to the right authorities when an NRI sells a property in India.
These papers are necessary to verify the legitimacy and legality of the transaction.
Some of the documents required to sell an NRI-owned property in India are listed below:
1. Passport - This legal document serves as the transaction's party's identity.
2. PAN Card - This document is required if you wish to apply for a tax-exempt status certificate after purchasing a home. NRIs from a few countries are given PAN numbers that contain the address of their overseas home.
3. Tax Returns - The NRI seller must file income tax returns for the relevant fiscal years and report the sale of the property. The due dates should file income tax returns to avoid penalties.
4. Address Proof - Both Indian and overseas addresses require supporting documents. Ration cards, phone and electricity bills, life insurance policy statements, Aadhar cards, and other papers fall under this category.
5. Sale Agreement - The sale agreement is a legal document that details the terms and circumstances of the property's sale. The sale agreement should be signed by both the NRI seller and the buyer and recorded with the Sub-Registrar of Assurances.
6. Occupancy Certificate - Proof that the seller has made every payment required to the organization must be provided in the form of paperwork from the organization. An occupancy certificate certifies the apartment's ownership, while an allocation letter grants the building or flat official ownership status.
7. Title Deed - The title deed is a legal document that certifies property ownership. The property must be legally conveyed to the NRI seller by a current, valid title deed that is free from any ambiguities.
8. Encumbrance Certificate - Any legal obligations on the property, such as mortgages, liens, or other obligations, are certified absent by a certificate of encumbrance. To make sure the property is legal, the NRI seller must obtain an encumbrance certificate from the appropriate authorities.
9. Power of Attorney - If the NRI seller is unable to attend the property sale in India, they can select a trustworthy person to act on their behalf using a power of attorney (POA). The POA must be confirmed by the Indian consulate in the NRI seller's home country.
10. Account Number for Tax Deduction and Collection (TAN) - To pay due taxes on the sale of property in India, the NRI seller must obtain a TAN, which is a 10-digit alphanumeric number. The Income Tax Department of India should be contacted to get the TAN.
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Conclusion
This article discusses the income tax rates and regulations that apply to non-resident Indians (NRIs) who sell homes in India.
Capital gains tax, which is assessed at varying rates depending on how long the property has been owned ( more than or less than two years), applies to real estate sales profits.
If the property is sold three years after the buyer purchased it, TDS must be deducted at a 30% rate rather than a 20% rate.
NRIs can lower their capital gains tax by utilizing Sections 54 and 54EC exemptions, reinvesting in new properties, buying capital gains bonds, deducting expenses incurred, tracking improvement costs, transferring properties to family members, and deducting capital losses.
A list of the documents required to sell an NRI-owned property in India is also provided in the article. NRIs can contact Especia to get information about property income tax.
Valuation, secretarial, transaction counseling, routine tax and compliance, and virtual CFO are just a few of the financial outsourcing services that Especia provides.
To enhance governance and increase transparency in how organizations function, tax and corporate policies are changing quickly.
FAQs related to Income Tax on Non-Resident Indians who sell House Property in INDIA
1. As a non-resident Indian, am I required to pay income tax on the sale of my Indian home?
Yes. In India, you must pay capital gains tax when you sell your apartment. Additionally, the buyer must pay taxes on any gains you make. If the gain is on a short-term capital asset, tax is deductible at slab rates while the tax deduction rate is 20%.
2. How is capital gains tax computed for NRIs selling real estate in India?
The sale price and the indexed cost of acquisition are used to calculate the capital gains tax due by NRIs who sell a residence in India. The original purchase price is increased by inflation over time to create the indexed cost of acquisition. Property owned for more than two years is subject to a 20% long-term capital gains tax; property owned for less than two years is subject to a 30% short-term capital gains tax.
3. When NRIs sell their homes in India, do they get a tax break?
Yes, NRIs may occasionally ask for tax exemptions. For instance, if a property sale's proceeds are invested in another property within two or three years( when purchasing or building), they are tax-free. Other regulations, such as the ability to purchase particular bonds or small savings accounts, may also be requested by NRIs.
4. Can NRIs claim tax breaks on the sale of a home in India?
Tax benefits on selling a residence in India are available to NRIs. For instance, they may be able to deduct money spent renovating the property while they owned it. NRIs may also write off expenses incurred during the real estate transfer, including stamp duty, brokerage, registration fees, and legal costs. As they are not Indian residents, NRIs are not permitted to take the standard deduction on income from residential property.
