Selling a property in India

NRIs can sell residential and commercial properties in India, but there are restrictions on agricultural land, plantation properties, and farmhouses. While NRIs can sell their properties to resident or non-resident Indians, agricultural land, plantation properties, and farmhouses can be sold only to resident Indians.

However, you must comply with the relevant Foreign Exchange Management Act (FEMA), 1999 regulations while repatriating the sale proceeds from India. Repatriation limits depend on your residential status, the method of acquiring the property and the source of funds.

Sale of property by NRIs: Permissible scenarios

Selling property bought as a Resident Indian (RI)

• If you bought a property before you became an NRI, you can repatriate sales proceeds under the overall limit of USD 1 million per financial year (April–March). If you want to remit more than USD 1 million in a financial year, you should seek approval from the Reserve Bank of India (RBI) by applying through your authorised dealer (bank)

Selling property bought as an NRI

For properties bought and sold after becoming an NRI, the repatriation limits depend on the source of funds used to purchase the property.

• If you have purchased the property with foreign currency or using your Non-Resident External (NRE)/Foreign Currency Non-Resident (FCNR (B)) accounts you can repatriate the entire sale proceeds of the immovable property. It is important to note that repatriation of sale proceeds for residential property (other than agricultural land) is restricted to a maximum of two such properties in your lifetime. If you want to remit proceeds by selling more than 2 properties, you should seek the RBI’s approval by applying through your authorised dealer (bank)
• If you have purchased the property using your NRO account or from Indian income, you can repatriate up to USD 1 million per financial year. This is applicable regardless of the number of properties sold. If you want to remit more than USD 1 million in a financial year, you should seek the RBI’s approval by applying through your authorised dealer (bank)

Property received as a gift or inheritance

• As an NRI, you may inherit any immovable property and you can repatriate the sale proceeds up to USD 1 million per financial year. If you want to remit more than USD 1 million in a financial year, you should seek the RBI’s approval by applying through your authorised dealer (bank)

Further, as an NRI, you cannot receive agricultural land, plantation property or a farmhouse as a gift.

Taxation on Sale of property for NRIs

• NRIs who sell a house in India are required to pay capital gains tax. The amount of tax payable depends on whether the gains are short-term capital gain (STCG) or long-term capital gain (LTCG).
• LTCG: When a property is sold after holding it for more than two years, the gains arising from such property will be treated as LTCG.
• STCG: When a property is sold within two years of acquiring it – the gains arising on such property will be treated as STCG.
• If property is inherited, tax implications will also arise. In that case, you should remember to consider the date of purchase of the original owner when calculating whether it’s an LTCG or STCG. In such a case, the cost of the property shall be the cost to the previous owner.

Tax Rates Applicable to NRIs on Property Sale

The taxation of capital gains on the sale of property is as follows:

• STCG (Short-Term Capital Gains): Taxed at applicable slab rates.

LTCG (Long-Term Capital Gains):

• Before 23rd July 2024: Taxed at 20% with indexation benefit.
• After 23rd July 2024: Taxed at 12.5% without the indexation benefit.

Note: For properties acquired on or before 22nd July 2024, taxpayers have the option to choose between paying 20% tax with indexation or 12.5% tax without indexation on the LTCG.

How to Save Tax on Capital Gains

You can also claim exemptions under Section 54 and Section 54EC on long-term capital gains from the sale of house property in India.

Exemption under Section 54

To avail yourself of this exemption, you must invest up to the amount of capital gains in purchase of another property in India. If purchase price of new property is higher than capital gain amount, the exemption is limited to total capital gain amount.

The purchase of the property should be:

• One year before the date of sale
• Two years after the date of sale
• If the new property is under construction then construction must be completed within three years from the date of sale
• The maximum LTCG claimed as exempt under this Section shall be I 10 crores.

Exemption under Section 54 EC

• You can save taxes on your LTCG by investing them in certain bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC), which have been specified for this purpose, within 6 months of date of sale. These bonds are redeemable after five years and must not be sold before the completion of 5 years from the date of sale of the house property.
• You are allowed to invest a maximum of INR 50 lakhs in these bonds in a financial year.

Exemption under section 54F

• The benefit of this exemption is available when there is a LTCG on the sale of any capital asset other than a residential house property. To claim this exemption, you need to purchase one house property within one year before or two years after the date of transfer or construct one house property within three years after the date of transfer. This new house property must be situated in India and should not be sold within three years of its purchase or construction.
• Also, you should not own more than one house property (besides the new house), nor should the you should purchase or construct any other residential house within two years or three years.
• Here, the entire sale proceeds must be invested. If the entire sale proceeds are invested, then the capital gains are fully exempt; otherwise, the exemption is allowed proportionately.

TDS Deductible

• When an NRI sells property in India, the buyer is liable to deduct TDS @ 20%. If the property is sold before completion of 2 years from the date of purchase, the buyer is liable to deduct TDS @ 30%.
• The buyer must deposit the deducted TDS amount with the Income Tax Department through e-challan by the 7th day of the next month, on which the payment was made to the seller. The buyer should file the TDS return in the next quarter of depositing the TDS amount. After the TDS return is filed, the buyer can download Form 16A and provide it to the NRI seller.