NRI Taxation and Remittance Rules for Selling Property in India:

NRI Taxation and Remittance Rules for Selling Property in India This article gives an overview of the compliances Non-Resident Indians (NRIs) must do to sell their immovable premises in India. It includes Tax payments and filing of various Forms and Returns. Capital Gain When any property is sold by an NRI in India, the profit earned on it is counted as either short-term or long-term capital gains, depending on the time period it is owned for. If in case it is held for over two years, it is treated as a part of long-term gain, and if it is owned for less than two years, then it is treated as a part of short-term gain. If in case the property is inherited from someone, then the ownership period will be counted from when it was originally bought, and additionally, that date of owing will be used to calculate the original cost. Beginning from July 23, 2024, the tax rates on long term capital gains has decreased to 12.5%. Short term capital gains are usually higher as it taxed at the person's regular income tax slab rate. From the financial year 2024–25, the benefit of indexation (adjusting the purchase price for inflation) is no longer available. Tax treaties of India with foreign countries, known as Double Taxation Avoidance Agreements (DTAAs), usually do not provide much relaxation for capital gains from real estate sales in India. Tax Deducted at source One essential thing to remember is that Tax Deducted at Source (TDS) is a tax that buyers should deduct and pay to the government while purchasing any property. For NRIs, TDS is 12.5% (plus surcharge and cess) of the total sale value if it’s a long-term gain and Slab Rates for short-term gains. This can affect how much cash the seller actually receives at the time of sale. If the actual tax owed is lower than the TDS amount, NRIs can apply for a lower TDS certificate from the Income Tax Department to reduce the amount deducted. Also, to send the sale money abroad (repatriate funds), the NRI must fill out and submit Form 15CA and Form 15CB through an authorised bank or dealer. ITR Filing Lastly, the NRI who has sold the property, must file the Income Tax Return for that Financial Year. For Financial Year 2024-25, the due date to file ITR is 31st July 2025.

Understanding Basic Meanings:

What are capital gains? They are gains earned while transferring capital assets. Property that is not movable is termed as a capital asset, and therefore, its sale is termed as capital gains. Classification of Capital Gains: STCG vs. LTCG

• Long-Term Capital Gains (LTCG): They are the gains earned on properties sold after keeping them for more than 2 years. These types of gains are classified under LTCG. This gain is counted under lower income taxes.
• Short-Term Capital Gains (STCG): They are the gains earned on properties sold after keeping them for less than 2 years. These types of gains are classified under STCG. This gain is counted under standard income taxes.

When the property is inherited from someone, in that case it is important to consider the date when the original owner bought it, in order to classify the type of capital gain. The cost and holding period of the property will be based on when and how much the original owner bought it for. This makes it easier to calculate the capital gains correctly. This assists in proper classification and calculation that the taxes are paid an optimum value.

Tax Rates

As per Indian tax laws, recent changes have made a big difference for NRIs selling property in India:

• Long-Term Capital Gains (LTCG): If you sell a property after 23 July 2024 and have owned it for more than 2 years, the tax rate is now 12.5% (earlier it was 20%).
• Short-Term Capital Gains (STCG): If you sell the property within 2 years, the gains are taxed as per your income tax slab in India.
• No Indexation: From the financial year 2024–25, you can no longer adjust the purchase price for inflation (called indexation). So, tax will be calculated on actual gains without any inflation adjustment.

Can you save tax using Double Taxation Avoidance Agreements (DTAA)?

• No. DTAA agreements usually say that the country where the property is located (in this case, India) will tax the capital gains. So, NRIs cannot use DTAA to avoid or reduce tax on property sales in India.

TDS (Tax Deducted at Source) and Its Effect on Cash Flow

This is important because it affects how much money you actually receive from the sale.

• When a resident sells a property, TDS is just 1%.
• When a non-resident (NRI) sells, TDS is 12.5% of the total sale value, plus surcharge and cess.

TDS Rates Depending on Holding Period:

• If sold within 2 years (STCG): TDS is 30%, plus surcharge and cess.
• If sold after 2 years (LTCG): TDS is 12.5%, plus surcharge and cess.

Buyer's Responsibility:

• Buyers must get a TAN (Tax Deduction Account Number).
• Pay the TDS by the 7th of next month.
• File TDS details using Form 27Q.
• Provide Form 16A to the NRI seller to show how much tax was deducted.

Can the TDS Rate be Reduced?

• Yes, if your actual tax is lower than the TDS being deducted, you can apply to the Income Tax Department for a lower TDS certificate.

Repatriation of Sale Proceeds

When an NRI wants to send the money from the sale abroad, they need to:

• Submit Form 15CB: A Chartered Accountant certifies your income and tax payment.
• Submit Form 15CA: Using your income tax login, this form is uploaded and sent to the bank.

These forms must be submitted to the authorised bank to transfer the money out of India.