What are the implications of selling a property in India?
Getting the long-term benefits of your investment is the driving force of the real estate industry in India. If you are an NRI and planning to sell your property in India but still not sure on how to proceed, read on for a thorough guide covering the legal aspects and simple pointers to remember before selling property in India.
Who can you sell your property to?
As an NRI, you are eligible to sell your commercial or residential property to an NRI or either a person residing in India or a person of Indian origin (PIO). Moreover, NRIs are also eligible to mortgage your property to an authorised property dealer or a financial institution dealing with home loans. However, if your property is agricultural land, it can only be sold to an Indian citizen who lives in India.
Tax implications of selling a property in India:
The tax liabilities involved in selling a property held by an NRI are as per the Foreign Exchange Management Act (FEMA) of India. According to this act, the primary factors that contribute to the amount payable as a tax are:
- The capital gains defined by the date of sale of property in India
- The value of the contract based on the profit gained
- Charges accountable to the society
- Other pending loans
- Apart from these charges, the property owner is responsible for paying short-term capital gains as per their tax bracket if the property and land has been in possession for less than 3 years. However, if the property at risk is up for sale after 3 years of investment, the NRI is responsible to pay a flat amount of 20% of the property value as capital gains.
- Under the section 195 of the Income Tax Act, NRIs selling their property in India can claim a tax Consumer’s Certificate of exemption from the income tax authorities of the country. However, the application must belong to the same jurisdiction as the candidate’s PAN card with evidence of capital gains reinvestment.
- Moreover, as per the section 54 of the Income Tax Act, if an NRI has sold a property within 3 years of ownership and immediately bought another property within two years of the sale, then the profit made by the deal, maximum to the extent of the new property’s price, is free of any tax liabilities. This rule is fit only to the properties purchased in the Indian subcontinent.
- To addition, if an NRI sells the property after three years of property ownership and spends the capital gains in bonds, then he/she is not liable to pay capital gains tax according to the section 54E of the Income Tax Act. But the bonds will be locked for a period of three years. This rule is appropriate only to residential properties in India.
Repatriation of the sale amount of Indian property:
NRIs are subjected to a list of general terms and conditions while repatriating a property inherited from the resident of India. Once these terms and conditions are met, NRIs can go forward with the process of repatriating the sale proceeds without taking the permission of the Reserve Bank of India (RBI). On the other hand, if an NRI has inherited the property from an individual who is not of Indian origin, they will require to seek permission from the Central Bank.
Selling a property in India is one of the complicated process. Hence, it is always advisable that NRIs must hire a property lawyer to take legal advice before buying and selling property in India and prevent all problems.