NRI’s guide to selling property in India

It often happens that Non-Resident Indians wish to buy and sell properties in India. It can be selling a parental property in a tier-3 city and buying new properties in metropolitan cities. Managing properties in India can at times be very tedious for NRIs, then be it management and repairs of the property or paying property taxes. In this blog, we will venture into the various aspects of selling a property by an NRI.

An NRI can sell his/her residential or commercial property to either a person residing in India, another NRI, or a person of Indian origin (PIO). One can also mortgage the property to an authorized real estate dealer or a financial institution dealing with home loans. However, if the property is an agricultural land or farming development, it can only be sold to a resident Indian citizen.

If the property was inherited from an Indian resident, no special permission from the RBI is required; however, if it was inherited from someone who was not of Indian origin, the NRI must seek permission from the Central Bank. Income from property transfers is taxed as Capital Gains, while rental income from letting out the property is taxed as Income from House Property. The difference between the sales price and the indexed cost of purchase is used to calculate the capital gain.

Related Blog:-NRIs Guide to Buying and Renting a Home in India

The process of selling a property owned by an NRI in India is as follows:

1. Do a comprehensive evaluation of the property to find its market value or simply hire a broker or brokerage firm to do the same for you.

2. If one isn’t physically available, a trustworthy person can be granted the Power of Attorney to carry out the sale, provided that all the necessary paperwork is there.

3. Understand the tax liabilities. Capital gains are taxable in the year in which the property is transferred, irrespective of whether the sale payment has been received in full or not.

4. The taxation details have been explained in brief below:

a.If one is selling the property within 2 years (changed from 3 years after Budget 2017) of purchase, then short-term capital gains tax will be applicable, and selling after 2 years makes the long-term capital gains tax applicable.

b.Taxes on short-term capital gains are based on an individual’s income slab.

c.Taxes on long-term capital gains are fixed at 20%.

d.When a resident Indian purchases a property from an NRI, then the buyer is liable to deduct TDS at 20% on long-term capital gains (LTCG). In case the property is being sold before 2 years, 30% TDS will be deducted. A TAN (Tax Deduction and Collection Amount Number) needs to be obtained by the buyer before deducting the TDS.

e.In case the property has been inherited, the date of purchase by the original owner is considered for calculating whether it’s a long-term or a short-term capital gain. In such a case the cost of the property will be the cost that the previous owner incurred on the respective property.

Read more about Capital Gains Tax

5. TDS (Tax Deducted at Source) is deducted at the time of making the payment to the NRI. All the information regarding the TDS and its rate has to be mentioned in the sale deed between the NRI seller and the buyer.

6. The amount can be received only in an FCNR or NRE/NRO account.

7. The NRI would be exempt from tax if he/she re-invests the capital gains of the property in another property or tax-exempt bonds.

Documents required by NRI for selling property in India:

1. Passport- It serves as proof of identity for the person involved in the transaction

2. PAN Card- It is required if one plans to apply for a tax exemption certificate after the sale of the property. NRIs of select countries are given PAN numbers which have their foreign residence address.

3. Tax Returns- If the NRI has been earning money from the property, tax returns for the ownership period should be kept handy.

4. Address Proof- Documents in support of addresses in India and abroad have to be provided. This includes ration cards, telephone bills, electricity bills, life insurance policy statements, Aadhar cards etc.

5. Sale Deed- A sale deed is a legally binding agreement between the parties who are buying and selling a legally owned property.

6. Documents From The Society- Documents from the society are needed to establish that the seller has no outstanding payments to the society. An occupation certificate states that the flat has been occupied and the allotment letter bestows official authority on the owner of the property or flat.

7. Encumbrance Certificate- An encumbrance certificate is necessary to assure that the property has no dues to any legal authority.

Conclusion

In the ever-evolving world of real estate, there’s a fascinating trend catching the eye of both investors and those seeking a peaceful retirement: Non-Resident Indians (NRIs) are increasingly opting to sell their properties in India. It’s not just about a change in scenery or investment strategies; it’s a reflection of shifting priorities and lifestyle choices. As NRIs make decisions about their assets back home, it’s creating an intriguing ripple effect in the market, especially in places like Chennai, Pune, and Bhiwadi. What’s captivating is how this trend intersects with the emergence of new retirement homes in the city. Picture this: NRIs parting ways with their properties and simultaneously exploring options in these modern retirement havens. It’s a seamless transition that speaks volumes about the desire for comfort, security, and a sense of community in one’s later years.