How should NRIs sell property in India?
The article lists out the important points and steps an NRI property seller must keep in mind while selling property in India.
How should NRIs sell property in India?
Posted on 04 Aug 2024
Author: Sayan Sircar
16 mins read
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The article lists out the important points and steps an NRI property seller must keep in mind while selling property in India.
This article is a part of our detailed article series on property deals between an NRI seller and a resident Indian buyer. Ensure you have read the other parts here:
-
Complete Tax Guide for NRIs Selling Land in India
This article simplifies the process of selling land in India for NRIs, offering clear insights on how to manage TDS deductions, understand the differences between urban and rural agricultural land, and calculate capital gains tax.
-
Which are the important points to keep in mind when buying a house from an NRI seller?
The article lists out the important points and steps that a resident Indian buyer should keep in mind when purchasing property from an NRI seller.
-
FAQs for NRIs for applying for Power of Attorney (PoA) for selling a house in India
This article lists out the processes and frequently asked questions for NRIs looking to create a Power of Attorney for selling their house in India.
-
FAQs for NRIs for applying for Lower Deduction Certificate by filling Form 13
This article lists out the processes and frequently asked questions for NRIs looking to fill Form 13 for applying for Lower Deduction Certificate.
📚 Topics covered:
- Which are the main points NRIs must keep in mind when selling a property in India?
- How can an NRI sell their property in India quickly at the highest price?
- What taxes are due when an NRI sells property in India?
- How do you get the most money from the sale by lowering TDS?
- How does the TDS computation work for the NRI property sale?
- How should an NRI pay the lowest tax on capital gains on property sales?
- How can an NRI get the property sale money out of India?
- How much will the NRI get from the property sale after filing tax returns?
- How can NRIs save tax from property sales in India?
- How much capital gains tax will an NRI pay in their home country due to property sales in India?
Which are the main points NRIs must keep in mind when selling a property in India?
We will cover the following points:
- Sell the property quickly at the highest price
- Get the most money from the sale by lowering TDS
- Get the money out of India at the best forex rates
- Pay the lowest tax on capital gains in India
How can an NRI sell their property in India quickly at the highest price?
The best way to get your property sold is to hire the professional services of a property broker and offer them a slightly higher brokerage rate.
Some Dos and Don’ts on this:
- DO: Go to only one broker who is well-regarded in that locality.
- DO: Offer 0.5% to 1% more brokerage. If, for example, the standard brokerage amount is 1%, then offer 1.5% or 2%.
- DO: Give Specific (not General) Power of Attorney (PoA) to either the broker or a trusted friend/family member in case you cannot fly to India for the actual signing of the deal. PoA is only for signing the deal. The amount will go into the NRO account of the seller.
- DON’T: Waste time listing with online property portals. You will not get genuine buyers and will be constantly bothered to buy their premium plans, which don’t work as effectively as a physical broker on the ground.
- DON’T: Approach multiple brokers. This gives the impression of a distressed sale, and you will not get good rates.
These steps ensure the broker’s incentives align with yours to get the best rates.
Related:
FAQs for NRIs for applying for Power of Attorney (PoA) for selling a house in India
What taxes are due when an NRI sells property in India?
Three types of tax must be calculated whenever an NRI sells property in India:
- Tax Deducted at Source (TDS) in India
- Capital Gains Tax in India
- Capital Gains Tax in the NRI’s home country (with or without DTAA benefit)
Related:
Complete Tax Guide for NRIs Selling Land in India
How do you get the most money from the sale by lowering TDS?
Tax Deducted at Source (TDS) is the income tax deducted before the income is given to you.
All property deals by NRI sellers, without exception, fall under the TDS rules specified in Section 195 of the Income Tax Act. The TDS and payment rules are:
- The buyer pays TDS, at 20% or a higher rate, to the income tax department and the rest of the sale amount to the NRI seller’s NRO account.
- The NRI seller receives only the post-TDS amount in their NRO account.
- There is no role of the NRE account in the property sale transaction.
- PAN number of NRI seller must be marked as NRI in the income tax portal. This avoids the PAN-Aadhaar linkage requirement for tax filing and TDS refund
- The TDS is adjusted against capital gains and tax on other income once the NRI seller, with NRI marked PAN number, files their income tax return in India.
- The buyer will deposit the TDS and give the seller Form 16A from the income tax website.
- TDS is not capital gains tax. That gets calculated separately.
Related:
FAQs for NRIs for applying for Lower Deduction Certificate by filling Form 13
How does the TDS computation work for the NRI property sale?
Effective TDS Rate = Base TDS Rate * (1 + Surcharge %) * (1 + Cess %)
where Base TDS Rate = 12.5% (long-term), Cess = 4%, Surcharge = 0, 10% or 15% (for property sold after 2 years of purchase)
and where Base TDS Rate = 30% (short-term), Cess = 4%, Surcharge = 0, 10% or 15% (for property sold before 2 years of purchase)
This effective TDS rate applies to the registration value of the property:
- Less than ₹50 lakhs: TDS Rate = 12.5% * (1 + 0%) * (1 + 4%) = 13.00%
- ₹50 lakhs to ₹1 crore: TDS Rate = 12.5% * (1 + 10%) * (1 + 4%) = 14.30%
- ₹1 crore or more: TDS Rate = 12.5% * (1 + 15%) * (1 + 4%) = 14.95%
- ₹2-5 crore: TDS Rate = 12.5% * (1 + 25%) * (1 + 4%) = 16.25%
- ₹5 crore or more: TDS Rate = 12.5% * (1 + 37%) * (1 + 4%) = 17.81%
Warning: For NRI sellers, their PAN must be marked as NRI (to get around the Aadhaar-PAN linkage rule). Otherwise TDS will not get refunded even after Income tax return filing.
For deals after 23-Jul-2024 (as per Union Budget 2024)
Here are some sample TDS numbers for various sale values for deals after 23-July-2024 (using base TDS rate of 12.5% for properties held for more than 2 years)
| Registration value | TDS Rate | Buyer Pays to IT | Buyer Pays to Seller | Seller gets in NRO |
|---|---|---|---|---|
| ₹25 lakhs | 13.00% | ₹3.25 lakhs | ₹21.75 lakhs | ₹21.75 lakhs |
| ₹50 lakhs | 13.00% | ₹6.50 lakhs | ₹43.50 lakhs | ₹43.50 lakhs |
| ₹75 lakhs | 13.00% | ₹9.75 lakhs | ₹65.25 lakhs | ₹65.25 lakhs |
| ₹1 crore | 14.30% | ₹14.30 lakhs | ₹85.70 lakhs | ₹85.70 lakhs |
| ₹1.5 crores | 14.95% | ₹22.43 lakhs | ₹127.58 lakhs | ₹127.58 lakhs |
| ₹2 crores | 14.95% | ₹29.90 lakhs | ₹170.10 lakhs | ₹170.10 lakhs |
| ₹3.5 crores | 16.25% | ₹56.88 lakhs | ₹293.13 lakhs | ₹293.13 lakhs |
| ₹5 crores | 17.81% | ₹89.05 lakhs | ₹410.95 lakhs | ₹410.95 lakhs |
For deals before 23-Jul-2024
Here are some sample TDS numbers for various sale values for deals prior to 23-July-2024 (using base TDS rate of 20%)
| Registration value | TDS Rate | Buyer Pays to IT | Buyer Pays to Seller | Seller gets in NRO |
|---|---|---|---|---|
| ₹25 lakhs | 20.80% | ₹5.20 lakhs | ₹19.80 lakhs | ₹19.80 lakhs |
| ₹50 lakhs | 22.88% | ₹11.44 lakhs | ₹38.56 lakhs | ₹38.56 lakhs |
| ₹75 lakhs | 22.88% | ₹17.16 lakhs | ₹57.84 lakhs | ₹57.84 lakhs |
| ₹1 crore | 23.92% | ₹23.92 lakhs | ₹76.08 lakhs | ₹76.08 lakhs |
| ₹1.25 crores | 23.92% | ₹29.90 lakhs | ₹95.10 lakhs | ₹95.10 lakhs |
| ₹1.50 crores | 23.92% | ₹35.88 lakhs | ₹114.12 lakhs | ₹114.12 lakhs |
| ₹1.75 crores | 23.92% | ₹41.86 lakhs | ₹133.14 lakhs | ₹133.14 lakhs |
| ₹2 crores | 23.92% | ₹47.84 lakhs | ₹152.16 lakhs | ₹152.16 lakhs |
Note: If the buyer is applying for a home loan, the bank will not fund the TDS portion of the loan. That has to be a part of the buyer’s own funds. If the bank funds up to 75% of the non-TDS portion, the down-payment amount will be:
| Registration value | TDS Rate | TDS Amount | Loan Eligible Amount | Maximum loan | Downpayment | Downpayment % |
|---|---|---|---|---|---|---|
| ₹25 lakhs | 13.00% | ₹ 3.25 | ₹ 21.75 | ₹ 16.31 | ₹ 8.69 | 34.75% |
| ₹50 lakhs | 13.00% | ₹ 6.50 | ₹ 43.50 | ₹ 32.63 | ₹ 17.38 | 34.75% |
| ₹75 lakhs | 13.00% | ₹ 9.75 | ₹ 65.25 | ₹ 48.94 | ₹ 26.06 | 34.75% |
| ₹1 crore | 14.30% | ₹ 14.30 | ₹ 85.70 | ₹ 64.28 | ₹ 35.73 | 35.73% |
| ₹1.5 crores | 14.95% | ₹ 22.43 | ₹ 127.58 | ₹ 95.68 | ₹ 54.32 | 36.21% |
| ₹2 crores | 14.95% | ₹ 29.90 | ₹ 170.10 | ₹ 127.58 | ₹ 72.43 | 36.21% |
| ₹3.5 crores | 16.25% | ₹ 56.88 | ₹ 293.13 | ₹ 219.84 | ₹ 130.16 | 37.19% |
| ₹5 crores | 17.81% | ₹ 89.05 | ₹ 410.95 | ₹ 308.21 | ₹ 191.79 | 38.36% |
Many potential buyers might face challenges in arranging such a large down payment amount.
How should an NRI pay the lowest tax on capital gains on property sales?
Short-term capital gains tax is 30% + cess for when sold within two years.
Long-term capital gains tax is 12.5% + cess for when sold after two years without indexation.
TDS rates are also revised to 12.5% (long-term) and 30% (short-term) with cess and applicable surcharge
Union Budget 2024 revised the long-term capital gains tax rules for property:
- If you purchased the property after 1st April 2001, then the tax is 12.5% on profit without indexation: Budget 2024: A Surprise in Real Estate Sales due to Indexation Benefit Removal: Is it good or bad?
- If you purchased the property before 1st April 2001, then indexation may be applied: Budget 2024: Will indexation benefit apply to property purchased before 2001?
- NRIs do not get grandfathering benefit of 20% on profits after indexation for property sales after 22nd July 2024: How should NRIs sell property in India?
How can an NRI get the property sale money out of India?
Proceeds from property sale go into the NRO account. There is no role of the NRE account here.
You must engage a CA to repatriate this amount to your country of residence. You can transfer up to $1 million a year out of India as an NRI.
We have covered the complete process in detail here: The complete guide for transferring money to an NRE account
How much will the NRI get from the property sale after filing tax returns?
Sale proceeds in NRO account = Sale value - TDS
Post Tax income of the NRI = Total taxable income - Capital Gains Tax Due
If the total TDS (including income from share/MF sales, rent, NRO interest, etc.) plus the TDS from property sales is more than the tax due from all income, including capital gains on share sales, then there will be an income tax refund.
You must file your income tax returns by 31st July to get any refund.
How can NRIs save tax from property sales in India?
Saving tax is only allowed in the case of Long-term Capital Gains.
There are only two ways to save Long-term Capital Gains tax from real estate sales:
- Section 54: Use the sale proceeds to buy a house up to one year before or up to two years after this sale while not owning more than one more house.
- Section 54EC: Invest a maximum of ₹50 lakhs in infrastructure bonds, with a five-year lock-in.
Related:
How Section 54EC helps you save tax when you sell property
In either option above, you must open and deposit the amount to be utilised for either property purchase or bond investment in a Capital Gain Account Scheme (CGAS) if the investment happens after 31st July for a property transaction that happens before 1st April. For example:
- Property sold on 1st December 2023 and a new house booked on 1st October 2024. CGAS needed since the sale is before 1st April 2024 and the new house is bought after 31st July 2024.
- Property is sold on 1st May 2024 and a new house booked on 1st October 2024. CGAS not needed since the investment is in the same financial year.
How much capital gains tax will an NRI pay in their home country due to property sales in India?
Most countries (including India non-surprisingly) have tax on global income. As soon as the remittance from India hits your foreign account, the foreign bank will report the transaction, due to size, to the income tax authorities (e.g. the IRS for the US, HMRC for the UK etc.). You will have to pay capital gains (or equivalent tax) in your home country.
If the Double Taxation Avoidance Agreement (DTAA) is applicable, then any capital gains tax already paid (or to be paid in India) can be deducted from the tax due in your home country.
Related Articles
- Which are the important points to keep in mind when buying a house from an NRI seller?
- Complete Tax Guide for NRIs Selling Land in India
- TDS on Property Purchase: A Step-by-Step Guide
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This post titled How should NRIs sell property in India? first appeared on 04 Aug 2024 at https://arthgyaan.com
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