NRIs tend to invest funds in landed property in India. Nevertheless, not all of them are conscious of the tax implication for NRIs selling property in India or selling shares in India. The regulations for tax on the sale of property of NRIs (non-resident Indians) selling shares or property in India are poles apart from the regulations that are relevant to Indian sellers. Let us observe what would be tax implication for NRIs selling property in India.
Tax implication for NRIs on rental income
Income tax on rental fee or capital gains tax on property received by non-resident Indians is chargeable under the head House Property and is charged by the same means as it is for Resident Indian. Out of the full amount of rental fee received by the non-resident Indian, Municipal taxes are first and foremost allowable to be reduced.
Afterward, the balance sum – 30% is permissible as standard deduction and deduction for interest paid on a home loan are permissible. In case of a non-resident Indian owns more than a single property, but neither rents out nor uses it for housing purposes, then that property can be claimed as self-occupied. But in such cases, the notional rental fee is calculated, and duty is applied to the remaining properties.
Tax implications for NRIs on Capital gains
If an NRI sells his property in India within two years of buying it, he will be legally responsible for shelling out short-term capital gains tax on real estate, depending on the income slab. However, if the property is sold after two years or more, a non-resident Indian has to shell out long-term capital gains tax on property, at 20 percent. Also, if you are selling a hereditary property, you will be legally responsible for giving tax at 20 percent only, except if the individual you inherited the property from purchased it within two years of its sale.
Tax exemptions for NRIs
In case a non-resident Indian sells a residential property after three years of procurement and reinvests the funds in a different residential property within two years from the date of sale, the taxes on selling a house is excused to the degree of the price of the new property. However, non-resident Indians can’t use the profits of the property deal in India on the overseas property and still allege over the exemption.
TDS Implications for NRIs
According to the income tax act, when compensation is made to non-resident Indians, TDS have to be deducted at the appropriate rate depending on the nature of proceeds. As a result, when an NRI sells a property in India, subsequent TDS is applicable. Also, if the capital gain is long-term, the purchaser is required to take away a TDS of 20% on the sale value of the property. In the same way, for short-term capital gains, TDS is deducted at the rate of 30%. The TDS taxable to NRIs is more significant than that declarable to resident Indians.
The bank with which the non-resident Indian deals permits repatriation of income from fixed property that is subject to a number of conditions. Capital that is acquired from outside for the procurement of property can be repatriated. On the other hand, sale profits of just two residential properties can be repatriated. Where the non-resident Indian takes a home loan to buy the property, the bank permits him/her to repatriate a sum corresponding to what he brought in from out of the country to pay the loan back
Double Taxation Avoidance Agreement (DTAA)
The DTAA, in the main, is a tax agreement which is signed between two nations so that the taxpayers can keep away from paying twofold taxes on their earnings. The foreign country and Government of India, for the evasion of double taxation and the avoidance of fiscal avoidance concerning the taxes on profits, enter into double taxation avoidance agreement or DTAA. On the other hand, the same is not valid to the income tax on sale of property on the undistributed earnings of companies, forced under the Income Tax Act.
In the NRIs selling their property in India, the tax implications and exemption are parallel to those of a resident Indian. Nevertheless, the NRI should turn out all the papers for claiming deductions. An NRI should make a well-versed and educated decision to avail of all the benefits accessible to NRIs.
Read more about: How to register property in India, Guide for NRIs
Read more about: Checklist for NRIS to invest in Indian property