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NRIs living out of India have purchased properties in India, but end up not taking care of it. As a result they go to an extent of selling their inherited or self-acquired property after obtaining the citizenship of their residing country. This trend has increased, as holding on to your properties, especially when you can’t handle it. This recent boom in the Indian estate industry has promoted Non Resident Indians (NRIs) to sell their properties in India to take advantage of the hike in Land prices.

However, NRIs must also keep in mind of special provisions of the Indian tax law before selling their property in India in order to ensure a smooth transaction and avail the benefits that the government provides.

Taxation

NRIs who sell their property within 3 years of its purchase have to incur capital gains at 20%. Although NRIs are subjected to Tax Deducted at Source (TDS) OF 20% on long term capital gains, there are several instances when an NRI can get waiver. If an NRI sells the property before 3 years of purchase, then short term capital gains tax is imposed at the TDS rate of 30%. An NRI gets 2 years time to invest in another property and upto 6 months if he chooses to invest in bonds. In case an NRI is planning to buy a new house, the payment receipt or allotment letter must be produced and an affidavit is needed if capital gains bonds are bought. 

Tax Exemptions 

NRIs can claim exemptions under sections 54, 54F and 54EC of the Income Tax Act on long term capital gains from the sale of house property in India:

In case an NRI sells a residential property after 3 years of its purchase and later reinvests on another property within a span of 2 years, the profit generated is exempt to extent of the cost of the new property. Take for instance, if the capital gains is ₹ 15 lakhs, but the new property costs ₹ 10 lakhs, the remaining ₹ 5 lakhs will be treated as long term capital gains.

Section 54EC of the Income Tax Act states that, if an NRI sells a residential property after 3 years and invests the amount of capital gains in bonds, then he will be exempted from capital gains tax. Moreover the bonds will remain locked in for 3 years.

Section 54F of the Act states that in order to claim an exemption, an NRI ha to purchase on house property within 1 or 2 years before the date of transfer or construct 1 house property within 3 years after the date of transfer of the property. The act also states that the new property must be situated in India and should not be sold within 3 years of its purchase or construction.

Also the NRI should not own more than one house property nor purchase within a period of 2 years or construct within period of 3 years.

Repatriation Of Proceeds 

Generally, a permission is given to NRIs and persons of Indian origin to repatriate (Send back person to place of origin) the sale of proceeds of property inherited from an Indian resident. If such conditions are met, then the NRI doesn’t have to seek the Reserve Bank Of India’s (RBI) permission. In case  the NRI has inherited the property from a person residing in India, he/she must seek for specific permission from the central bank.

Criteria For NRI To Sell Property In India

Basically, These rules are applicable only when an NRI Sells His/Her property to another:

• An NRI can only sell residential or commercial property in India to a person residing in India or NRI or a PIO (Person of Indian Origin).
• An NRI can sell his/her agricultural land/plantation property/farm house in India, only to a person who is a resident of India and is of Indian origin.
• 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 RBI is required.

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