NRIs must take note of the special provisions of the Indian tax laws before selling their property in India, to ensure a smooth transaction and avail maximum benefit.
Similar to the purchase of a house, the sale of your house attracts tax liabilities. For NRIs the tax implications are as per the Foreign Exchange Management Act (FEMA) 1999. To consider are transfer (sale) date for determining capital gains; agreement value for calculating profits and hence capital gains; transfer charges to the society, legal charges and loan outstanding, if any.
If you sell your house within 3 years from the date of purchase and make a profit, then you are liable to pay short-term capital gains tax at the normal rate applicable to you. If the sale happens after 3 years from the date of purchase, then it attracts long-term capital gains tax at a flat rate of 20%. You can avoid the long-term capital gains tax by investing the profit after factoring the indexation benefits, in capital gains bonds such as NHAI, NABARD, REC and SIDBI or investing in another property in accordance with section 54 of the Income Tax Act within 6 months of the sale date.
NRIs can transfer through sale, any residential or commercial property to a person resident in India, a PIO (person of Indian origin) or another NRI. However, PIOs can do such transfers only to persons resident in India. For transfer to another PIO or NRI, they need RBI’s permission. In case of agricultural land, plantation or farmhouse, NRIs and PIOs can transfer only to a citizen of India resident in India.
If the property being sold was purchased in accordance with foreign exchange regulations prevailing at the time of purchase, then the sale money can be repatriated. However, the amount of money allowed repatriation is equal to the amount used for purchase in foreign currency. The excess amount (profit) can be repatriated up to $1 million per year per person from the NRO account. The repatriation of sale amount of residential property is restricted to a maximum of two properties.
Sale of property can be a complex issue and you will benefit by consulting a tax professional. If you have any information or advice for our readers, please write to us. Did you have any trouble with working out taxes during the sale? How did you solve the issue?
(Source: Income Tax Laws; HDFC)
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