Tax Implication for the NRIs Selling their Property
Jan 14, 2019 Real Estate News
The Indian real estate is a gold mine for foreign investors. High return and suitable norms, makes it easier for the NRIs to invest in the property in India. Though, the tax implications for the NRI sellers are very different from the resident citizens. If you are selling your property, here I everything you should know.
If you are selling the property that you inherited, then you are liable to pay tax only at 20 percent unless the property you inherited was bought less than two years back.
To avail the benefit under this section, it is necessary that you put in the amount that you have made in the capital gains to the new purchase. You need not put all the proceeds to the new purchase. The exemption is limited to only the capital gains on the purchase. You can either choose to invest either a year before selling the property of two years after.
If you are planning to invest in the property for the construction, then remember that the property construction must be completed within three years of sales of the property.
Unlike Section 54, it is mandatory in Section 54F that all the proceeds of the sales must be invested.
If you are planning on saving the tax, then there can be three scenarios that can come from selling the property. First, the capitals gains were zero i.e.; the property was sold at no profit. In such a case, you can apply for NIL tax deduction certificates. Your CS can help you with the same. Second, if the NRI is willing to pay the capital gains, but the TDS is higher than the tax, then they can apply for Lower tax deduction certificate. Third, you can apply for a Tax exemption certificate if you are reinvesting to save the capital gain tax.
Capital gains
If you are selling your property within two years of purchase, then you are liable to pay the short term capital gains based on your income. If you are selling the property after two years of purchase, then the NRI will have to pay long term capital gain at the rate of 20 percent.If you are selling the property that you inherited, then you are liable to pay tax only at 20 percent unless the property you inherited was bought less than two years back.
TDS
The buyer who is purchasing the property will have to deduct the TDS at 20 percent. If the property the NRI is selling was bought less than two years back, then the TDs deducted will be 30 percent.Saving on the capital gains
Under Section 54 and Section 54EC of the income tax act, NRIs can save on LTCG tax if they invest in another property or capital gain bonds.Tax exemption under Section 54 for NRIs (Residential property)
This is applicable if the property is sold after two years of purchase. It could be self-occupied or at least once.To avail the benefit under this section, it is necessary that you put in the amount that you have made in the capital gains to the new purchase. You need not put all the proceeds to the new purchase. The exemption is limited to only the capital gains on the purchase. You can either choose to invest either a year before selling the property of two years after.
If you are planning to invest in the property for the construction, then remember that the property construction must be completed within three years of sales of the property.
Tax exemption under Section 54F for NRIs (Non-residential property)
When selling a non-residential property and hoping to save on taxes, remember that you will have to buy a residential property one year before the sales or within two years after the sales.Unlike Section 54, it is mandatory in Section 54F that all the proceeds of the sales must be invested.
Tax exemption under Section 54EC
If the NRI is not willing to invest in another property, then they can invest in the government-owned bodies like NHAI and REC to avail the exemption. These bonds cannot be sold before three years has been completed of the sales of your property.Capital gains scheme, 1988
If you have failed to invest your capital gains by the end of the financial year, then you can deposit your gains in any public sector banks, and you can claim it for the exemption.If you are planning on saving the tax, then there can be three scenarios that can come from selling the property. First, the capitals gains were zero i.e.; the property was sold at no profit. In such a case, you can apply for NIL tax deduction certificates. Your CS can help you with the same. Second, if the NRI is willing to pay the capital gains, but the TDS is higher than the tax, then they can apply for Lower tax deduction certificate. Third, you can apply for a Tax exemption certificate if you are reinvesting to save the capital gain tax.
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