Non-Resident Sale of Property, Capital Gain Tax Implications, Capital Gain Tax Exemption & Planning (54, 54F, 54EC Bonds), Lower TDS Certificate, NRI Remittance of Money NRO Account To NRE/Foreign Bank Outside India (NRI 15CA 15CB Services) – Consultant Chartered Accountant Services In Delhi, Mumbai, Hyderabad, Bangalore (Bengaluru), Kochi, Chennai, Kolkata, Noida, Gurgaon, Kerala, Punjab, UP, Gujarat, Major Cities India
Many NRIs and PIOs/OCIs (Indians/Indian Origins), living abroad (USA, UK, Australia, Singapore), hold immovable property in India. NRIs/PIOs acquire these properties by way of their own investment in past. In many cases, NRIs inherit the property from their parents/grandparents. For many reasons, NRIs/PIOs, who are living abroad, want to sell their property and remit the funds abroad. In many cases, NRIs/PIOs plan to sell India property to buy property abroad which they can use.
Property sale matter raises a series of queries in the mind of NRIs, PIOs. Here, are some standard questions, which arises in the mind of NRI/PIO property seller:
- What is Capital Gain? How to calculate capital gain?
- What is the TDS on sale of immovable property? How it is different for NRIs/PIOs?
- How NRIs OCIs can get a Nil rate or lower Rate of TDS certificate (Form 13)?
- How to pay taxes and remit the funds abroad? What is Form 15CA, 15CB etc?
- Whether/How to file ITR for property sale matter by NRI?
- Can tax be saved on capital gain arising on sale of property?
Here, is some information to clarify the above said doubts:
- Capital Gain: In simple words,Capital Gain is difference on Sale and Purchase of property. It can be Capital Loss also, if purchase price is more than sale price. In Income Tax Act, Capital Gains are of two types ie. Long Term Capital Gain and Short Term Capital Gain. In relation to immovable property, if holding period of property is more than 2 (two) years, it is considered as long term. If holding period is less than 2 years then it is short term.
- TDS on Sale of Immovable Property: As per Indian Tax Laws, there is requirement of TDS deduction on buying a property. Purpose is to collect the tax at the time of sale of property. This TDS provision is different for Resident Seller (sec 194IA) vs Non-Resident Seller (i.e. NRI, PIO, Other Foreign Citizens etc) (Sec 195). Hence, buyer need to check if the seller is Resident or Non-Resident. In case of NRI/PIO seller, provisions of Non-Resident Seller (ie. Section 195) will apply. Sec 195 provide maximum rate of TDS i.e 20% on Long Term and 30% on Short Term. Surcharge (as applicable) and Cess (4%) extra.
- Lower TDS Certificate or TDS Exemption Certificate: As mentioned above, section 195 provides for a maximum rate of tax deduction and that too on the sale amount of property. To avoid this inconvenient situation, NRI or PIO or Foreign Citizen can approach Income Tax Department for a Lower Rate TDS Certificate. For this more information and full process can be understood on our separate Article NRI Lower Rate TDS Certificate.
- Filing of ITR for Capital Gain Reporting: NRIs, PIOs, who sells property, need to report their property sale transaction to the Income Tax Authorities in India. For the same, NRI need to file Income Tax Return with the Income Tax Department after close of the financial year. Thus, e.g. if a property sale happens in FY 2022-23 then he needs to file an ITR in FY 2023-24. In this ITR, NRI can show the actual capital gain working on sale of property. NRI can claim the excess TDS deducted as a refund in this ITR. This refund comes back to NRI bank account after some time on processing of ITR by Income Tax Department. To understand more on this please refer our section NRI Income Tax Return.
- Saving of Capital Gain Tax: NRI can save the tax arising on capital gain on property sale transactions. Income Tax Act provides some capital gain tax saving investments i.e. Investment in Tax Saving Bonds, Investment in new Residential House in India. In FAQ section below, details of these investment is described in detail.
Also Read – Can NRIs Buy/Sell Agriculture Property In India?
Here, in S Lohia & Associates, we provide a one window service to NRIs/PIOs. In relation to sale of immovable property in India, NRIs/PIOs generally look forward for Chartered Accountant services such as:
NRI CAPITAL GAIN RELATED SERVICES & ADVISORY
- NRI Services wrt Before Immovable Property Sale: Vetting of Sale Agreement and other advisory. Our NRI Team do advise on this within the framework of Income Tax Act as well any other law. Advisory tips e.g. choosing of sale deed date, choosing of bank account for depositing the sale consideration etc. Similarly, we provide many other advisory/assistance to enable lots of things effective and convenient for the NRI/PIO.
- NRI Tax Computation of Capital Gains : Our NRI Tax Team verifies the purchase and further construction related documents, sale documents, other expenses in connection with purchase and sale of property. Our team assists in preparation of basic tax document ie NRI Capital Gain Tax Computation. Our team applies Income Tax Provisions and Court Judgements in computing Capital Gains.
- NRI TDS Exemption Certificate or Lower Rate TDS Certificate: On NRI property sale, the buyer has to deduct TDS. This TDS rate is 20% (plus surcharge and cess) on the sale amount. This arises a real hardship for NRIs/PIOs in terms of cash blocking in the form of TDS. Hence, NRIs/OCIs have an option to apply to the Income Tax Department for a TDS Exemption Certificate or Lower TDS Certificate. Here, our NRI TDS Advisory Team advise and assist in applying and obtaining NRI TDS Exemption Certificate or NRI Lower TDS Certificate (Form 13) from Income Tax Authorities. This certificate is applied under section 195/197 of the Income Tax Act and can be applied online.
- NRI Capital Gains Exemption Claim : Gain on Property Sale attracts Capital Gains Tax under the Income Tax Act. This tax can be saved by applying various schemes e.g. new house, bonds, capital gain tax saving a/c etc. Our NRI Tax Advisory Team assist its clients in finding best way for tax saving.
- NRI Computation of Taxes and Its Payment : Post tax saving planning etc, there need to calculate taxes, if any payable. We calculate those taxes. if some taxes are payable, we assist in timely depositing of same to avoid any interest/penalty . On the payment of due taxes, the balance funds are free for any use including Repatriation outside India.
- NRI Repatriation of Money Outside India (Form 15CA 15CB): Post tax payment etc, NRI/PIO approaches its banker to remit funds outside India. As per RBI regulations, generally these funds are eligible for repatriation under NRI USD One Million Scheme. Our NRI Money Repatriation Matters Advisory Team provide best advise to our NRI Clients on same. At this point, on requiring the Banker to remit funds outside India, the banker require the Remitter to provide certain documents as per the RBI Regulations, which includes i.e. a CA certificate (in Form NRI 15CB) and RBI Acknowledgement in Form NRI 15CA, Application in form A2 etc. Our NRI Tax Team assist its clients on each stage ie CA Certificate, completing documents, remittance of funds abroad etc.
- NRI ITR Filing: NRI has to file Income Tax Return (ITR) for capital gains tax implications on property sale transaction. Taking into consideration all other incomes earned in India, we provide the services of preparation and filing of NRI ITR with IT Department in India.
- NRI Income Tax Deductions, Relief and Exemptions: NRIs, OCIs, PIOs can claim various income tax deductions, exemptions and reliefs in India. Some of these reliefs, deductions and exemptions are in relation to Gift Income, Scholarship Income, Foreign Tax Credit, Medical Exps, Interest Income etc. For more details please see NRI, OCIs, PIOs Income Tax Deductions, Relief and Exemptions in India.
- NRI Property Sale Tax Litigation: Property Sale Transactions are more prone to Income Tax Scrutiny or Other Enquiries. For the same, our litigation team provide expert service for initial stage best solution to close/plug the proceedings.
- NRI General Advisory : In addition to above, we also provide other general and specific advisory. We advise on various laws in relation to sale/repatriation transactions of immovable property e.g. FEMA, Tax etc.
- NRI Records: We also advise our clients to keep various documents, which are important for future Tax and other enquiries. Further, we also keep a record of document obtained by us from client for any future requirement.
General FAQs – NRI Property Sale Capital Gain Tax – NRIs, OCIs, PIOs, Foreign Citizens etc
Q: How the capital gains arise on property sale by NRI or pios in India? How to calculate that capital gain?
Ans: When NRI sells an immovable property in India, capital gain arises on same. In simple words, capital gain arises on same is difference between the property sale price and purchase cost. However, there are various circumstances. Hence, as per Income Tax Act Capital Gain Chapter, to compute capital gain following needs to find out:
- Cost of acquisition at the time of purchase of property.
- Find out other costs incurred for Improvement in property after acquisition of cost.
- Year of Cost of Acquisition and Cost of Improvement.
- Index the Cost of Acquisition and Cost of Improvement as per the Income Tax Indexation.
- Calculate Expenses in relation to Sale of Property i.e. Broker Fee, Other Costs if any.
- Capital Gain is calculated by reducing Indexed Cost of Acquisition, Indexed Cost of Improvement and Expenses During Sale.
Q: What are Capital Gain Tax Saving Bonds? What is the Lock In Period of these Bonds? Can NRIs Invest in these Bonds to save Capital Gain Tax?
Ans: Capital Gain Tax Saving Bonds are provide under section 54EC of the Income Tax Act. Other features are:
- Maximum Capital Gain Exemption limit is Rs 50 Lakh.
- Investment should be within 6 months of the property or other asset sale.
- NRIs are allowed to avail Capital Gain Exemption by investing in these bonds.
- Capital Gain Exemption Bonds are available through various sources including Banks Financial Advisory Arms.
- Generally, these bonds are issued by REC, NHAI etc.
- Exemption will be for the amount which is invested in the Bonds subject to maximum limit of Rs 50 Lakh.
- Lock in period of these Bonds are 5 years (increase from 3 years in recent years budget).
Q: What is Capital Gain Exemption U/s 54 and 54F by way of investment in residential house? To claim this exemption, whether NRIs or PIOs can buy residential house in their home country abroad and claim capital gain tax exemption?
Ans: U/s 54 or 54F, if someone sells a property in India then he can claim exemption of capital gain by investing money in a Residential House Property. Hence, briefly, Capital Gain Exemption is available through investment in new Residential House. Now, question comes, that whether this is available to NRIs or PIOs. The Answer is yes. However, NRIs or PIOs have to invest the money in a residential house in India. NRI or PIO cannot avail this exemption by investing the money in residential house outside India. Earlier there was a confusion that PIOs or NRIs can buy residential house abroad and claim capital gain exemption in in India. Few years back, a classificatory amendment is made in Income Tax Law.
Q: What Are Long term and short term capital gains? what are The tax rates on property sale Capital Gain In india? whether there is a different rate of capital gain on Nris or pios?
Ans: There are two type of Capital Gains. Long Term Capital Gain and Short Term Capital Gain. If property is held for 2 years or more then it is long term. If property holding period before sale is less than 2 years then it is short term. Tax on Long Term Capital Gain is 20% (plus surcharge & cess). Tax on Short Term Capital Gain is 30% (plus surcharge & cess). These tax rates are same on NRIs and PIOs. There is no difference of tax rates on NRIs/PIOs or Resident Indians.
Q: what is tds rate on property sale by nris in india? how can nri get a lower tds certificate for this?
Ans: TDS rate on property sale by NRIs is either 20% (long term) or 30% (short term). Education cess and surcharge extra. However, NRIs or OCI can approach to Income Tax Department and apply for a lower tds certificate. After a due procedure, income tax department issues lower/nil tds certificate for the property sale. Here is detailed procedure in this regard.
Q: After sale of property what is the procedure for repatriating money outside india by nris or ocis?
Ans: NRIs or OCIs can approach to their bank and apply for remitting / repatriating money outside India. Bank ask for Form 15CA and 15CB from for the repatriation. A chartered accountant firm can provide these services to NRIs OCIs. These forms are to submit online. We also assist in facilitate the repatriation process by communication with bank. Here is detailed procedure in this regard.