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Complete Tax Guide on Selling/Buying Property by Non-residents in India

The transactions relating to sale and purchase of immovable property by Non-Resident Indian (NRI) is governed by RBI as per the regulations made under the FEMA Act. This article aims at decoding the tax implications for selling and buying of property in India by NRIs.

Selling of property in India by NRI

In case an NRI wants to sell a property situated in India, he is liable to pay tax on the amount of capital gains. The amount of tax payable depends on the type of gain, short-term or long term.

How to decide if the gain is short-term or long-term?

  • If the property is held for a period of 2 years or less, it is said to be short-term capital gain.
  • If the property is held for a period of more than 2 years before selling, it is said to be long-term capital gain.

P.S. In case the property is inherited by the NRI, the date and cost of purchase of the original owner is taken into consideration for calculating the period of holding and cost in the hands of the NRI.

What are the rate of taxes applicable?

  • Short-term capital gains are taxed on the basis of income tax slab rates applicable to the NRI.
  • Long-term capital gains are taxed at a rate of 20%.

Who is liable to deduct TDS?

  • The buyer is liable to deduct TDS @ 20%. In the event of property being sold before 2 years, from the date of purchase, TDS @ 30% is to be deducted.
  • However, the liability to obtain the certificate of non-deduction or lower deduction from the Assessing Officer lies on the NRI.

What are the tax exemptions available?

  • NRIs can save tax on capital gains by availing exemptions under sec 54, 54F and 54EC.

Buying of property in India by NRI

Wondering about the laws and regulations regarding purchase of property by an NRI? Here’s everything you need to know. Tax benefits in respect of an NRI buying a property in India is similar to that of a resident individual.

What are the kinds of property that an NRI can buy?

  • No specific permission from RBI is required by an NRI to buy any immovable property other than agricultural land, farm house and plantation property.
  • An NRI can purchase an agricultural land, farm house and plantation property by obtaining specific approval from the RBI and Government.

P.S. An NRI can inherit agricultural land, farm house and plantation property from a resident in India and can keep it.

What should be the source of funding?

  • Payment for the purchased property can be made out of funds from normal banking channels by way of remittance.
  • Payment can also be made out of funds held in any Non-resident accounts in accordance with FEMA Regulations and RBI.

P.S. Payment cannot be made in traveller’s cheques or other country’s currency.

Is there any limitation to the number of properties held by an NRI in India?

  • No, there is no limitation as such to the number of properties held by an NRI. He/she can purchase as many properties as they want, in accordance to the relevant laws and regulations.

What happens if a person who owns a property in India, subsequently becomes an NRI?

  • In such a case, the person shall continue to hold the property in his name, including any agricultural land, farm house and plantation property. The only condition being that the person should be the owner of such property before he became an NRI.  

What are the tax benefits available?

  • NRIs can avail the benefit of sec 80C along with standard deduction of 30% on house property.
  • They can also avail the benefit of interest deduction on home loan.
  • One property held by NRI is considered to be self-occupied and hence is not taxable. However, owning more than one property is taxable in the hands of NRI.

With so many laws and regulations in force, selling and buying properties in India can be a tough task for NRIs. DSRV and Co. LLP, CA firm in Gurgaon, is at your service to ease this process and guide you.

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