The recent boom in the Indian real estate industry has prompted NRIs (Non Resident Indians) to sell their properties in India to take advantage of the hike in land prices. However, NRIs must take note of the special provisions of the Indian tax laws before selling their property in India in order to ensure a smooth transaction and avail maximum benefits.
One Indian to another
An NRI can only sell residential or commercial property in India to a person residing in India or to an NRI or a PIO (Person of Indian Origin).
Under general permission, an NRI can sell his agricultural land/plantation property/farm house in India only to a person who is a resident of India and is an Indian citizen.
An NRI can also transfer his/her residential or commercial property to an authorised dealer or housing finance institution in India through mortgage.
An NRI should not transfer by way of mortgage their residential and commercial property in India to a party abroad. For this purpose prior approval of the Reserve Bank of India (RBI) is required.
Tax liabilities: Like in the case of purchase, sale of the property also attracts tax liabilities. For NRIs, tax implications are as per the Foreign Exchange Management Act (FEMA) 1999, for which factors that need to be considered are, transfer (sale) date for determining capital gains; agreement value for calculating profits and thereby capital gains; transfer charges to the society; legal charges and outstanding loans, if any.
If the NRI sells his/her house within 3 years from the date of purchase and makes a profit, then he/she is liable to pay short-term capital gains tax at the normal rate applicable as per his/her tax bracket. But if the sale occurs after three years from the date of purchase, then he/she has to pay capital gains tax at a flat rate of 20%.
After the sale of property, the NRI may repatriate the sale proceeds of residential or commercial property in India but must remember that the repatriation of sales is restricted to two properties only. Also, the repatriated amount should ideally not cross the sum paid for acquiring the property, either in foreign exchange received from banks or the Non Resident account, nor should it overshoot the foreign currency equivalent as on the day of payment. Today, remittance of funds from property sales is simple and hassle-free for the benefit of NRIs.
However, the NRI must ensure that he/she is well guided by a legal expert in matters of property sale in India and must also be wary of fake property dealers. It is best to hire authorised dealers so that the property and sale is handled in safe and appropriate manner.