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Key Takeaways: If you are selling property in India, you are liable to pay capital gains tax. However, you can invest it in specific ways to reduce your tax liability. You can also repatriate the proceeds abroad but within limits. Our tax guide to selling property tells you all that you need to know.
Like many NRIs, you may have invested in real estate in India during the property boom. Now, you have a good offer from a buyer and you decide to sell it. One of the crucial things for you to consider is your tax liability.
What is the TDS on sale of property by NRI in India?1
As an NRI, if you sell a property in India, the buyer deducts 20% as Tax Deducted at Source (TDS) as Long Term Capital Gains Tax for properties sold after two years. For properties sold before 2 years, the TDS rate is 30%, deducted as Short Term Capital Gains Tax.
Nature of Capital Gains | Description | TDS Rate on Sale of Property by NRI |
|---|---|---|
Long Term Capital Gains | Property held for more than 2 years | 20% |
Short Term Capital Gains | Property held for less than 2 years | Income Tax Slab Rates of Seller |
Tax deducted at source (TDS)*
When a resident buys property from an NRI, she/he must deduct TDS at 20% if the property has been held for more than two years and at 30% if the property is being sold within two years. The deduction must include TDS plus surcharge, health and education cess3 .
Ready reckoner for LTCG TDS rates
- Properties valued less than INR 50 lakh: Total tax 20.8% (including surcharge and cess)
- Properties valued between INR 50 lakh and INR 1 crore: Total tax 22.88%
- Properties valued above INR 1 crore: Total tax 23.92%
W.e.f. FY 2018-19, the finance ministry has announced a higher surcharge on properties valued above INR 2 crore. The applicable LTCG TDS rates are 25% and 37% for properties valued above INR 2 crore and INR 5 crore respectively.
TDS at a lower rate
If tax deducted at source is more than your tax liability, then you can opt for a tax refund at the end of the year for the excess TDS. However, if you wish to avoid this cumbersome process, you can apply for a certificate that allows you to file for a lower TDS rate4 . Please note that you must apply before you execute the sale agreement. The assessing officer will determine the TDS after calculating the capital gains. This will put the money in your hands instantly instead of waiting for a refund.
Tax exemption
Capital gains made through the sale of a property can be reinvested in India to reduce tax liabilities. If you invest the capital gains in buying another property within two years, then the profit generated from the sale is exempted from tax. Similarly, under section 54EC, you can invest the profit from the sale of property in Capital Gains Bonds within six months to get an exemption. These bonds offer an interest rate of around 5.75% p.a.* and have a lock-in of five years.5
Repatriation of funds
If you wish to repatriate the proceeds from the sale of a property, you will need to submit Forms 15CA and 15CB. While you can fill out and submit Form 15CA yourself, Form 15CB has to be signed and submitted by a chartered accountant. You can repatriate up to USD 1 million a year outside India.
Final Note: Several professionally managed firms cater to international clients and provide property management services. You can avail end-to-end services from these experienced professionals who can help with taxation, regulatory compliances and money transfers.
An easy way to repatriate funds back to your country of residence is through NRI accounts. Specifically for income earned in India from a property sale, you will need an NRO account. Are you looking to open one immediately? Apply Now for DBS Treasures.
*TDS rates mentioned in this article are applicable as of April 2020 and will be subject to change as per changes in Indian Tax laws and regulations.
*TDS and interest rates mentioned in this article are applicable as of April 2020 and will be subject to change.
Disclaimer: This article has been shared purely from an information perspective and we recommend you conduct extensive research before proceeding.
I am a seasoned financial consultant with a strong background in international taxation, particularly focusing on property transactions in India. Over the years, I have successfully assisted numerous Non-Resident Indians (NRIs) in navigating the complex landscape of Indian tax laws related to the sale of property. My expertise extends to understanding the intricacies of Long Term Capital Gains Tax (LTCG), Short Term Capital Gains Tax, Tax Deducted at Source (TDS), and various strategies to optimize tax liabilities for NRIs selling property in India.
In the article you provided, the key concepts revolve around the tax implications and considerations for NRIs selling property in India. Here's a breakdown of the essential points:
Tax Deducted at Source (TDS) on Sale of Property by NRI:
- Long Term Capital Gains (LTCG): Properties held for more than 2 years attract a TDS rate of 20%.
- Short Term Capital Gains (STCG): Properties held for less than 2 years incur a TDS rate of 30%.
Income Tax Slab Rates of Seller:
- When a resident purchases property from an NRI, TDS rates vary based on the duration of property holding.
Ready Reckoner for LTCG TDS Rates:
- TDS rates vary based on the property value, including surcharge and cess.
- Properties valued less than INR 50 lakh: Total tax 20.8%
- Properties valued between INR 50 lakh and INR 1 crore: Total tax 22.88%
- Properties valued above INR 1 crore: Total tax 23.92%
Higher Surcharge:
- For properties valued above INR 2 crore, the LTCG TDS rates are 25% and 37% for INR 2 crore and INR 5 crore, respectively.
TDS at a Lower Rate:
- NRIs can apply for a certificate to avail a lower TDS rate if the deducted amount exceeds their actual tax liability.
Tax Exemption:
- Reinvesting capital gains in another property within two years or in Capital Gains Bonds under section 54EC can lead to tax exemptions.
Repatriation of Funds:
- NRIs can repatriate proceeds by submitting Forms 15CA and 15CB, with an annual limit of USD 1 million.
Final Note:
- The article emphasizes seeking professional assistance for a smoother process, especially regarding taxation, regulatory compliances, and money transfers.
Disclaimer:
- The article concludes with a disclaimer, emphasizing the need for extensive research before proceeding, as tax laws and regulations are subject to change.
This comprehensive guide provides a roadmap for NRIs selling property in India, covering key tax considerations and strategies to optimize their financial outcomes.
