NRIs should take advantage of lower TDS while selling property in India

Being an NRI at this point in time must be a great spot to be in. And especially for NRIs who wish to make investments in India as well as for those who want to sell investments made some time ago.

According to property consultants, Indian metro cities are seeing a good 15 to 20% year-on-year increase in property sales from NRIs in the past couple of years. This is on the back of a constant rise in property prices in the metro cities.

According to data, the residential index of National Housing Bank, prices in Mumbai and Delhi have shot up by 27 and 30% between March 2016 and March 2018. While many NRIs are still mulling and some even selling their properties, it’s important they know how they will be taxed according to NRI tax rules on such a transaction.

If a resident Indian or a Non-Resident Indian (NRI) sells a property in India after holding it for a period of more than two years, then long term capital gains tax will be applicable as per NRI taxation.

While taxation is the same for both parties, there is a difference in the way Tax-Deducted at Source (TDS) is calculated.

NRI tax rules state that NRI selling property in India has the right to apply to the assessing officer for certificate of non-deduction or lower tax deduction. That is for deducting his TDS only on the capital gains. He can make this application because if the TDS rate of the highest percentage is applied to the sale price, then the NRI may end up getting less return than what he had invested.

In other words, the TDS including surcharge will be calculated only on the capital gains and not on the sale price which will not erode his profits, if any. If this gets approved by the Income Tax office, then the buyer of the NRI’s property can make payment to him in full (i.e.: sale price), whereas a certificate of (TDS on capital gains) will be issued separately to the NRI.

This procedure takes about 10-30 Days and will require the NRI to submit some key documents like his sale-agreement, PAN, income tax returns, bank statements, and so on. Hence, hiring an experienced chartered accountant with dedicated knowledge on NRI Taxation matters in India would work in his benefit to ensure a smoother transaction.

First, deduct the expenses incurred by NRI from the sale price, which will give you the net selling price of the property. Expenses incurred can include legal fees, transfer fees, development done for sale, etc. Then, the difference between this and the indexed cost of purchase will be your capital gains.

However, as an NRI you can save this TDS as well.

One way of getting this NRI TDS waiver is if the NRI re-invests these capital gains made from the sale of property in another property or in tax-free bonds. In such cases, as per NRI taxation, the NRI will be exempt from tax in India, and no TDS will be deducted either. For this, they will have to apply for a tax exemption certificate under Section 195 of the income tax act.

Whereas, if the NRI decides to sell that property within two years, then he will have to pay short-term capital gains tax according to the tax-bracket he falls under along with a fixed rate of TDS respectively.

As an NRI, he can ask his CA to file form 15 CA & CB electronically which will state that the NRI has no tax-liability and can remit this money back to his country now. If he doesn’t wish to repatriate the money, he can keep it in his Indian bank’s NRO account. However, according to RBI guidelines repatriation of such funds per financial year should not exceed $1 million.

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