As a Non-Resident Indian (NRI), you must pay tax on the capital gains you earn if you sell your property in India. The tax you pay will depend on how long you have held the property – if it is less than 2 years, it is considered short-term, while anything above 2 years is considered long-term. However, you can take advantage of certain exemptions under various sections of the Income Tax Act. For example, you can claim exemptions under Section 54, Section 54EC, and Section 54F.
Before putting your property up for sale, it’s essential to get it appraised by a qualified valuer. An idea of a property’s market value can help set a realistic price. You can market the property through various channels such as online portals, newspapers, or real estate agents. Provide all relevant details about the property, including location, size, amenities, and the asking price. Once the deal’s terms are agreed upon, you must execute the necessary documents, such as the sale agreement, the power of attorney, and the registration documents. You must pay the applicable taxes on the capital gains you earn from selling the property, which can be done through the buyer’s bank account or the TDS (Tax Deducted at Source) mechanism.
Here are some things you should consider regarding tax payments:
What is capital gain while selling property?
Capital gain refers to the profit an individual earns when they sell an asset for more than they paid. Regarding property, capital gain is the profit an individual earns when they sell a property for more than what they paid, including the cost of any improvements made to the property.
To calculate the capital gain, one must subtract the property’s cost basis from its sale price. The cost basis of a property includes the purchase price, closing costs, and any improvements.
In India, the tax treatment of capital gains from property sales depends on how long the property was held before being sold. If the property is held for less than two years, it is considered a short-term capital asset; if it is held for more than two years, it is regarded as a long-term capital asset. The tax rate varies accordingly.
- Short-term capital gains (STCG): STCG is taxed at your applicable income tax slab rate.
- Long-term capital gains (LTCG): LTCG is taxed at 20%, but you can claim indexation benefits to adjust the property’s cost basis for inflation. Indexation is a method of changing the cost basis of an asset for inflation. It reduces the amount of capital gain you make and, therefore, the amount of tax you have to pay.
When you sell a property, you might have to pay capital gains tax, but there are some circumstances where you may be exempt from it. You may be exempt if you sell your primary residence.
If you are a non-resident Indian (NRI) and sell a property in India, you must pay capital gains tax. NRIs can defer capital gains tax by reinvesting Indian property under Section 54.
Tax Exceptions of an NRI while Selling a Property in India
A few tax exceptions are available to NRIs while selling a property in India. These include:
- Section 54 exemption: In India, if use the proceeds to buy another property using the capital gain within two years of the sale, you can delay paying capital gains tax. However, the amount of capital gains that can be deferred is limited to the amount invested in the new property.
- Section 54EC exemption: Under this exemption, you can invest the capital gains earned from the sale of a property in particular bonds issued by the government of India. By doing so, you will not be required to pay any capital gains tax on the entire amount of the capital gains.
- Section 54F exemption: If you sell any asset apart from a residential property, you can defer capital gains tax payment if you use the proceeds to invest in a residential property in India within three years from the date of sale. The limit of capital gains that can be deferred is equal to the amount invested in the new property.
Apart from the mentioned exemptions, NRIs selling properties in India can also avail of other tax benefits. One such use is that NRIs are not liable to pay TDS on property sales. Suppose you are an NRI planning to sell a property in India. In that case, it is crucial to seek advice from a tax advisor to understand the applicable tax implications for your situation.
Keep in mind:
- The tax exemptions mentioned above have certain conditions, such as requiring the reinvested property to be used for residential purposes and located in India.
- To be eligible for the tax exemption, you must provide documentary evidence to support your claim. The evidence required may include the sale deed of your old property, the purchase deed of your new property, and the investment certificate for the capital gains bonds. Please ensure that you have all the necessary documents before making your claim.
TDS Deductibles for an NRI while Selling a Property in India
When an NRI sells property in India, the buyer is responsible for deducting TDS at the following rates:
- 20% if the property is held for more than 2 years.
- 30% if the property is held for less than 2 years.
It’s important to note that the TDS rates may not apply in certain cases. For instance, if the NRI seller is a resident of a country that has signed a double taxation avoidance agreement (DTAA) with India, the TDS rate may be lower.
In any case, the buyer must deduct the TDS and deposit it with the government within 30 days of the NRI seller’s payment date. If the NRI seller can prove that they have paid the applicable capital gains tax, they can claim a refund of the TDS.
- The TDS is deducted from the sale consideration, which is the total amount paid by the buyer to the NRI seller for the property.
- The TDS is not deducted from the buyer’s stamp duty or registration fees.
- The TDS is not deductible if the property is sold to a related party, such as a spouse or child.
If you are an NRI selling property in India, it is vital to know the TDS requirements. You should also consult a tax advisor to understand how the TDS affects your tax liability.
How do you claim a TDS refund when an NRI sells a property?
To claim a TDS refund when an NRI sells a property, you can follow these steps:
1. File your ITR for the financial year in which the property was sold.
2. Attach the Form 16A issued by the buyer to your ITR.
3. You must provide supporting documents if you have claimed any exemptions or deductions on the capital gains from the property sale
4. Once your ITR is processed, the Income Tax Department (ITD) will refund the TDS amount to you.
Keep in mind:
- You can claim a TDS refund even if you have not paid any capital gains tax.
- The TDS refund process can take a few months, so filing your ITR as early as possible is advisable.
- If you have any questions about the TDS refund process, you can contact the ITD helpline.
Here are the documents you need to claim a TDS refund when an NRI sells a property:
- Form 16A issued by the buyer
- Income tax return (ITR) for the financial year in which the property was sold
- Supporting documents for any exemptions or deductions claimed on the capital gains
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