As per Section 6 sub-clause (5) of Foreign Exchange Management Act, 1999, can sell their residential or commercial property in India that they have bought or inherited to a person resident in India, NRI or a PIO. After the selling, comes the repatriation of sale proceeds to the country of residence.
Primary requisites for a NRI/PIO to sell a property in India
- An NRI can only sell residential or commercial property in India to a person residing in India or to an NRI or a PIO (Person of Indian Origin).
- Under general permission, an NRI can sell his agricultural land/plantation property/farm house in India only to a person who is a resident of India and is an Indian citizen.
- An NRI can also transfer his/her residential or commercial property to an authorised dealer or housing finance institution in India through mortgage.
- An NRI should not transfer by way of mortgage their residential and commercial property in India to a party abroad. For this purpose prior approval of the Reserve Bank of India (RBI) is required.
Repatriation of sale proceeds of the property by NRIs, bought as a resident of India
- If you are selling the property bought before moving abroad that is while you were a resident of India, then sale proceeds must be credited to the NRO account. You are entitled to repatriate up to USD 1 million including all other capital transactions per financial year (April-March), given you have paid all your tax dues. This repatriation is restricted to sale of two residential properties only.
- You can do this repatriation if you held the property for at least 10 years and more. If you have kept the property for less than 10 years, you can’t repatriate the money immediately. You need to keep the money in your NRO account till it completes 10 year period and then you can transfer.
Repatriation of sale proceeds of the property by NRIs, bought as a Non-resident of India:
The sale proceeds of the property purchased after you become an NRI can be remitted outside India only after certain conditions are met:
- The property must be purchased in compliance with the foreign exchange laws prevalent at the time of the purchase.
- The repatriation cannot exceed the amount of foreign exchange remitted by the NRI to India via normal banking channels for the purchase of the said property.
- The remittance cannot exceed the funds paid through Foreign Currency Non Resident (FCNR) Account in buying the property.
- The repatriation cannot exceed the amount of loan repayment made using foreign inward remittance or debit to Non Resident External (NRE) or FCNR accounts.
- The remittance cannot exceed the amount paid through NRE account at the time of purchase.
- In all cases, the amount of sale proceeds must be credited to NRO account and only then up to USD 1 million per financial year can be repatriated. Such repatriation is allowed for only two properties.
- ‘Waiting for 10 years to complete for repatriation’ doesn’t apply for properties bought buy NRIs from their foreign money.
Tax implications for a NRI to Sell a property in India
- NRIs who sell their property within three years of its purchase have to incur capital gains tax at 22.66 per cent.
- In case of an inherited property, while computing the long-term capital gains, the cost to the previous owner (i.e. the person from whom the property is inherited) would be considered as the cost of purchase.
- Although NRIs are subjected to a Tax Deducted at Source (TDS) of 22.66 per cent on the long-term capital gains, there are certain instances when an NRI can get a waiver. One such case would be if the NRI is planning to re-invest the capital gains in another property or in tax-exempt bonds.
- If an NRI sells the property before three years of purchase, short-term capital gains tax is imposed at a TDS rate of 33.99 per cent. But, he can apply to the income tax authorities, from where he holds the PAN, for a tax exemption certificate under Section 195 of the Income Tax Act, along with the proof of reinvestment of capital gains.
- An NRI gets two years’ time to invest in another property and up to six months if he chooses to invest in bonds. If the NRI is planning to buy another house, the payment receipt or allotment letter needs to be produced and an affidavit is needed if capital gains bonds are bought.
- Tax exemptions: In case an NRI sells a residential property after three years of purchase and reinvests the money in another residential property within two years from the date of sale, the profit generated is exempted to the extent of the cost of the new property. However, NRIs can’t use the proceeds of the sale of property in India on a foreign property and still claim the exemption u/s. 54 of IT Act.
- Section 54 of the IT Act states that if an NRI sells a residential property after three years and invests the amount of capital gains in bonds, he will be exempted from capital gains tax. However, the bonds will remain locked in for three years.
Documents Required For Transaction of Sale by NRI:
- Passport: An NRI, who want to sell a property in India, should hold a passport; not necessarily an Indian passport. This will serve as the identity proof of the person, involved in the transaction.
For an Overseas Citizen of India (OCI) and a Person of Indian Origin (PIO), a passport serves the same purpose.
- PAN Card: A number of NRIs do not pay taxes in India, as their income is taxable in the countries they stay. However, experts believe NRIs should apply for a PAN (Permanent Account Number) card here when they intend to sell a property in India, as it will be required to apply for a tax exemption certificate as after the sale of the property. PAN numbers are given out to NRIs with a foreign communication address to select countries.
- Power of Attorney: For those NRIs who can’t be physically present in India to sell property, NRIs have an option to give POA to their friends or relatives and allow them (legally) to complete the transaction on your behalf. They will be signing agreements and other official documents on your behalf. The POA can be general or specific about the rights your representative can exercise.
- Tax Returns: If an NRI has been holding a property for a certain period and earning money from it (by renting it out, etc), the transaction becomes taxable. In that case, tax returns for the whole property-ownership period should also be kept ready.
- Address Proof: An NRI has to give documents in support of his address in India as well as abroad. This may include a ration card, telephone or electricity bills, life insurance policy statements, etc. Same set of papers are also required as the proof of residence abroad.
- Sale Deed: A key document needed in the process is the sale deed, also a primary proof of ownership. A legal document, sale deed is an agreement executed by an NRI while selling property in India .
- Allotment Letter: A letter of allotment (from a society, a builder or any relevant authority) bestows the property to the said person who holds it.
- Documents From The Society: For an apartment in a particular society, a letter from the apartment/society is needed for a go-ahead to the sales process. This document states the seller has no outstanding payments to the society. A copy of membership of the society is also important to establish ownership of the property.
- Approved Building Plan & Occupation Certificate: While a copy of an approved building plan is necessary for selling a property, an occupation certificate is a proof that the apartment has been occupied and is also given out by the builder or the building society.
- Encumbrance Certificate: An encumbrance certificate is necessary to assure the buyer that the land or the property has no dues to any legal authority. This is important in the case of a house, an apartment or even land.
Apart from these documents, it would also help if an NRI can provide documents of property tax receipts over the years.