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Tax Rules On Purchase or Sale of Property For NRI In India

Tax Rules on Purchase/Sale of Property for NRIs in India

Are you an NRI looking to invest in the Indian real estate market but unsure of the tax rules and considerations? Navigating the tax rules and considerations that come with property transactions is essential. After all, you want to make sure you’re maximizing your ROI and minimizing your tax liability.

However, it can be tough to go through the process independently with many rules and regulations. That’s why seeking professional guidance and advice is essential to ensure compliance and make the most of your investment.

This post will delve into the tax rules and considerations on purchase or sale of property for NRIs in India to help you make informed decisions.

Taxation Criteria For Sale or Purchase Of Properties For NRI

Tax Rate

NRIs selling house properties in India must pay tax on capital gains. The tax rate depends on whether you held the property for more than two years (long-term capital gain) or less than two years (short-term capital gain).

Long-term capital gains are taxed at 20%, while short-term gains are taxed at the NRI’s applicable income tax slab rate.

Example: If an NRI sells a property they have held for more than two years for a gain of Rs. 1,00,00,000, the long-term capital gains tax would be 20% of Rs. 1,00,00,000, which is Rs. 20,00,000.

Tax Deducted at Source (TDS)

TDS is deductible at 20% when an NRI sells the property or 30% if you sell the property before two years.

Example: If an NRI sells a property that they have held for less than two years for a gain of Rs. 50,00,000, the TDS would be 30% of Rs. 50,00,000, which is Rs. 15,00,000.

Inherited Property

The cost of inherited property is based on the original owner’s purchase date for tax purposes.

Example: If an NRI inherits a property from their parent, who purchased the property in 2000 for Rs. 50,00,000, and the NRI sells the property in 2023 for Rs. 1,00,00,000, the cost for tax purposes would be considered as Rs. 50,00,000 (the original purchase price).

The NRI would have to pay capital gains tax on the difference between the sale price (Rs. 1,00,00,000) and the cost for tax purposes (Rs. 50,00,000), which is Rs. 50,00,000.

Essential Documents Required For Property Transactions

Passport and PAN Card

These documents are required for identity and to claim tax exemptions.

Tax returns

These documents show income earned from the property and are necessary for tax purposes.

Address proof

Both Indian and foreign address proof is required for property transactions.

Sale deed

This legally binding document is necessary for the sale of a property.

Society documents

These documents show any outstanding payments or occupation status of the property.

Encumbrance certificate

This certificate ensures no legal dues or encumbrances on the property.

Tax Exemptions for NRIs on Capital Gains

Exemption under Section 54

Exemption under section 54F is available if the NRI uses the sale proceeds to purchase a new residential property within two years or construct a new residential property within three years.

Example: If an NRI sells a property for a gain of Rs. 50,00,000 and uses the proceeds to purchase a new residential property within two years, they may be eligible for tax exemption under section 54F.

Exemption under Section 54F

Exemption under section 54B is available if the NRI sells a property that is not their primary residence and uses the sale proceeds to purchase a new primary residence within two years.

Example: If an NRI sells a second property for a gain of Rs. 40,00,000 and uses the proceeds to purchase a new primary residence within two years, they may be eligible for tax exemption under section 54B.

Exemption under section 54EC

NRIs are eligible for exemption on capital gains tax if they invest the proceeds from the sale of a property in certain specified bonds. These bonds must be issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation (REC). You must hold the bonds for a minimum of 5 years to qualify for the exemption.

Example: If you have a capital gain of Rs. 50,00,000 from the sale of a property, you can invest this amount in NHAI or REC bonds and claim exemption on the tax liability.

However, make sure to consult a financial advisor or tax professional to fully understand the requirements and limitations of this exemption.

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