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Taxes on Sale of Property by NRI in India

Taxes on Sale of Property by NRI in India

This article covers in detail the applicability of Taxes on Sale of Property by NRI in India. In this article, the following topics have been explained in details.

  1. Applicability of Taxes on Sale of Property by NRI
  2. How much tax is payable on Sale of Property by NRI
  3. How to save tax on capital gains on Sale of Property by NRI
  4. Exemption under section 54 on Sale of Property by NRI
  5. Exemption under section 54F on Sale of Property by NRI
  6. Exemption under section 54EC on Sale of Property by NRI
  7. What is the Rate of TDS on Sale of Property by NRI?
  8. Reduce TDS Liability by filing application in Form 13 on Sale of Property by NRI
  9. File ITR & Refund claim

Applicability of Taxes on Sale of Property by NRI

There is no difference between taxation for NRIs on sale of residential property as compared to resident Indians. NRIs who are selling house property which is situated in India have to pay tax on the capital gains.

The tax that is payable on the gains depends on whether it’s a short term or a long term capital gain.

When a house property is sold, after a period of 2 years from the date it was owned— there is a long term capital gain. In case it is held for 2 years or less—there is a short-term capital gain.

How much tax is payable on Sale of Property by NRI

Long term capital gains are taxed at 20% and short term gains shall be taxed at the applicable income tax slab rates for the NRI based on the total income which is taxable in India for the NRI.

How to save tax on capital gains on Sale of Property by NRI

NRIs are allowed to claim exemptions under section 54 and Section 54EC on long term capital gains from the sale of house property in India.

Exemption under section 54 on Sale of Property by NRI

Exemption u/s 54 is available when there is a long-term capital gain on the sale of a residential house property. To claim u/s 54 exemption, the NRI has to purchase one house property within 1 year before the date of transfer or 2 years after the date of transfer or construct one house property within 3 years after the date of transfer of the capital asset. This new house property must be situated in India and should not be sold within 3 years of its purchase or construction.

Also, the NRI should not own more than one house property.

Here the entire capital gain is required to be invested. The capital gains are fully exempt if the entire capital gain is invested. Otherwise, the exemption is allowed proportionately.

Exemption under section 54F on Sale of Property by NRI

Exemption u/s 54F is available when there is a long-term capital gain on the sale of any capital asset other than a residential house property. To claim this exemption, the NRI has to purchase one house property within one year before the date of transfer or 2 years after the date of transfer or construct one house property within 3 years after the date of transfer of the capital asset. This new house property must be situated in India and should not be sold within 3 years of its purchase or construction.

Also, the NRI should not own more than one house property.

Here the entire sale receipt is required to be invested. The capital gains are fully exempt if the entire sale receipt is invested. Otherwise, the exemption is allowed proportionately.

Exemption  under section 54EC on Sale of Property by NRI

NRI can claim exemption u/s 54EC by investing his long term capital gain in Certain bonds.

The maximum limit for investing in 54EC bonds is Rs. 50,00,000. The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and IRFC (Indian Railways Finance Corporation Limited).

These are redeemable after 5 years and must not be sold before the lapse of 5 years from the date of sale of the house property. To avail the tax-exemption the investment must be made within 6 months of the date of sale of immovable property.  You will have to invest before the return filing date.

What is the Rate of TDS on Sale of Property by NRI

As an NRI, if you sell a property in India, the buyer deducts 20% as Tax Deducted at Source (TDS) as Long Term Capital Gains Tax for properties sold after two years. For properties sold before 2 years, the TDS rate is 30%, deducted as Short Term Capital Gains Tax.

Reduce TDS Liability by filing application in Form 13 on Sale of Property by NRI

NRI can apply for a lower TDS certificate to the concern Income Tax Authority, to seek relief in the TDS implication.  To apply for the said certificate the NRI is required to file form 13 on the income tax portal.  Please note that you must apply before you execute the sale agreement.

File ITR & Refund claim

If tds is more than tax liability, then NRI can opt for a tax refund at the end of the year for the excess TDS in his Income tax return.

Final Word: We hope this article helped you to know about “Taxes on Sale of Property by NRI in India”. Should you wish to know more about Taxes on Sale of Property by NRI in India or any tax-related matters, feel free to contact us and we will be glad to assist you.

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