Every potential homeowner invests in real estate for two main reasons. Apart from the assuring comfort that you have a safe and secure home to go back to, the investment is also about enjoying the returns in the form of a consistent secondary income or steady property appreciation. Selling your assets when they reach maturity is the driving force of the real estate industry. If you are an NRI selling property in India but are not sure how to go about it, read on for a detailed guide covering the legal aspects and simple pointers.
Who can you sell your property to?
There are many home financing options for NRI investors but an NRI selling property in India is a different situation altogether. You are eligible to sell your residential or commercial property to either a person residing in India, another NRI or a person of Indian origin (PIO). You are also eligible to mortgage your property to an authorised real estate dealer or a financial institution dealing with home loans. However, if your property is an agricultural land or a farming development, it can only be sold to an Indian citizen who resides in India.
Tax implications for selling a property
The tax liabilities for an NRI selling property in India are as per the Foreign Exchange Management Act of India. According to this act, the main factors that contribute to the amount payable as tax are:
- The capital gains determined by the date of sale of property
- The value of the agreement based on the profit gained
- Charges liable to the society
- Other pending loans
Apart from these charges, the owner is liable to pay short-term capital gains as per their tax bracket if the property has been under possession for less than three years. However, if the property at stake is up for sale after three years of purchase, the NRI selling property in India is liable to pay a flat amount of 20% of the property value as capital gains.
Under section 195 of the Income Tax Act, an NRI selling property in India can claim a tax exemption certificate from the income tax authorities of the country. However, the application needs to belong to the same jurisdiction as the applicant’s PAN card with evidence of capital gains reinvestment.
Additionally, under section 54 of the Income Tax Act, if an NRI has sold a property within three years of ownership and immediately bought another property within two years of the sale, then the profit generated by the deal, up to the extent of the new property’s cost, is free of any tax liabilities. This rule is applicable only to properties bought in the Indian subcontinent.
To add to that, if an NRI sells a property after three years of ownership and invests the capital gains in bonds, then he is not liable to pay capital gains tax according to section 54E of the Income Tax Act. However, the bonds will be locked for a period of three years, and this rule is applicable only to residential properties in India.
Repatriation of Indian property
An NRI selling property in India is subjected to a list of generic terms and conditions while repatriating a property inherited from an Indian resident. Once these conditions are met, NRIs can go ahead with the process of repatriating the sale proceeds without the permission of the Reserve Bank of India. On the other hand, if the NRI has inherited the property from someone who is not of Indian origin, they will need to seek permission from the Central Bank.
Now that you know the do’s and don’ts of property investment in India for NRIs, it is time you consider the booming industry of Indian real estate as an investment option and reap the long-term benefits of your very own property. You can also check out our detailed blogs on the do’s and don’ts for NRIs inveting in Indian realty and mandatory documents NRIs need while investing in Indian realty for better insights. Head out to Casagrand today and find a house you can call home.
