TAX on Sale of Property in India for NRI

TAX on Sale of Property in India for NRI

NRI can inherit a property, or might be having a own property, commercial property stocks bonds, land etc.If NRI wants to sell property in India as no longer required .

The tax can be either Short Term Capital Gains or Long Term Capital Gains Tax.

Short-Term Capital Gains:

A property – house, plot of land, commercial building, unlisted securities/stocks/bonds, debt-oriented mutual funds and preference shares – owned by an individual for less than 3 years is considered as a short-term capital. The profit you make when selling these short-term assets is called short-term capital gains tax. This profit amount will be added to your income and tax applied as per the income tax slab you fall under.

Long-Term Capital Gains Tax: 

If a person owns a property for more than 3 years, then it is considered as long-term capital. Long-term capital gains is the profit made while selling a long-term asset. There is a 20% tax – plus cess and surcharge – on long-term capital gains.

The country which the NRI is a resident of, is also an important consideration. India has entered into Double Taxation Avoidance Agreement (DTAA) with 88 countries in order to benefit NRIs who pay tax in both the countries. So if you are in a country that has a DTAA in force with India, then the taxation will depend on the lower of the tax rates – out of the DTAA specified rate and the tax rate in India.

Saving Tax On Capital Gains:

Exemptions on Capital Gains Tax available to the NRIs is the same as the ones available to resident Indians. These include exemptions under Sections 54, 54F and 54EC. Whether you are selling any kind of immovable property or stocks and bonds, if you buy another residential building with the profit made, you do not have to pay capital gains tax. You could also buy specific notified government bonds and securities with the capital gains and excuse yourself from paying tax. This transaction has to be made either 1 year before the sale or within 2 years of the sale to be able to claim the exemption.

However, if you sell either the newly bought house or the bonds within 3 years of buying it, then the capital gains tax exemption granted to you will be withdrawn and appropriate tax (20% plus cess and surcharge) will demanded from you. In case you are unable to invest your capital gains before the time to file Income Tax Return, then you can deposit the amount under the Capital Gain Deposit Account (CGDA) scheme in a public sector bank and use it within the stipulated time period to buy another house or notified government bonds.

When an NRI sells property, the buyer is liable to deduct TDS @ 20%. In case the property has been sold before 3 years from the date of purchase a TDS of 30% shall be applicable.

The NRI must make these investments and show relevant proofs to the Buyer – to make sure TDS is not deducted on the capital gains. The NRI can also claim excess TDS deducted at the time of return filing and claim a refund.

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