As a non-resident Indian (NRI), you may inherit property from your parents or other close relatives, you may have an old house that you no longer need, you may even inherit bonds and stocks from your family. If you intend to sell it on one of your visits to India, you need to know the taxes applicable on the sale and the profits you’d make.
The main tax components applicable on sales of property for an NRI are:
Short-Term Capital Gains Tax: 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. Here’s a table representing the tax slabs applicable in India:
Income Income Tax Rate For Men (below the age of 60) & HUF Income Tax Rate For Women (below the age of 60) Less than Rs. 2.5 lakh NIL NIL Between Rs. 2.5 lakh and Rs. 5 lakh 10% of the amount that exceeds Rs. 2.5 lakh 10% of the amount that exceeds Rs. 2.5 lakh Between Rs. 5 lakh and Rs. 10 lakh 20% of the amount that exceeds Rs. 5 lakh 20% of the amount that exceeds Rs. 5 lakh More than Rs. 10 lakh 30% of the amount that exceeds Rs. 10 lakh 30% of the amount that exceeds Rs. 10 lakh
Persons between the ages of 60 and 80 do not have to pay any tax for income up to Rs. 3 lakh, and 10% on income between Rs. 3 lakh and Rs. 5 lakh. Other parameters remain the same. On the other hand, individuals above the age of 80 are exempted from tax on incomes up to Rs. 5 lakh. Taxation on income above Rs. 5 lakh for these senior citizens is similar to that of the others.
- 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.
TDS on Sale of Property, under Section 194A are not applicable to an NRI seller. The main condition on sale of an immovable property is that the building or plot should be sold to Indian residents or companies, or other NRIs or Persons of Indian Origin (PIOs). You cannot avail tax exemptions in India if you are selling the property to a foreign national or company. NRIs will have to apply to the Assessing Officer for certificate of non-deduction or lower tax deduction, so that the buyer deducts taxes only on the capital gains and not on the entire sale value. If tax has been deducted and you are eligible for long-term capital gains tax exemptions, then you can claim refund while filing your Income Tax Return.