All About Tax Implications for NRIs

Introduction

As an NRI, you may be concerned about the tax implications of selling or buying a property in India. The good news is that you can take steps to help the procedure run as smoothly as possible.

To begin, it is critical to becoming familiar with India's rules and regulations governing property transactions. This article discusses how much tax is payable and how much TDS is deducted in the case of NRIs selling or buying property in India.

Tips for NRIs Selling Property in India

When an NRI sells a property in India, they must pay taxes on the money they made from the sale. The amount of taxes they must pay depends on how long they owned the property.

• If the property was owned for more than 2 years, it is considered a long-term capital gain.
• If the property is sold before 2 years, it is considered a short-term capital gain.
• If the property was inherited, the date when the original owner bought it is used to determine if it is a short or long-term capital gain. In such cases, the cost of the property will be considered as the cost to the previous owner.

It is important to be aware of the tax implications for NRI when selling a property in India and to seek help from a tax expert if needed.

Tax Payable for Capital Gains

When an NRI sells or buys a property in India, the amount of taxes they have to pay depends on whether the property was held for a short or a long time. Long-term capital gains are taxed at 20%, while short-term capital gains are taxed at the NRI's applicable income tax rate.

Tax Deductible

TDS or Tax Deducted at Source is deducted when an NRI sells a property in India. It is the responsibility of the buyer to deduct TDS and ensure it is done correctly. Otherwise, they may face penalties. There are different rules for deducting TDS on NRI property, which depend on the property type and how long the NRI holds it.

• To start with, the buyer must determine the residential status of the seller. This is important in determining the TDS rate.
• The buyer must obtain a TAN (Tax Deduction and Collection Account Number) before making the purchase.
• They must pay the TDS in full during the sale, and the TDS rate must be mentioned in the sale deed. 
• The seller must provide the buyer with a TDS certificate within 15 days from the date of sale. 
• The TDS amount to be deducted depends on the value of the sale and can vary depending on the tax slab and the NRI's residency.
• The NRI must also file a form 16A when they sell their property, and the buyer must file a form 16A to receive the sale proceeds.
• If the property is sold for less than 2 years, the buyer must deduct 30% of the TDS amount. 
• If it has been sold for more than 2 years, the buyer must deduct 20% of the total consideration value.

 => Read Also:- What is The Right to Property Article? Know Your Fundamental Rights

Ways to Reduce Tax on Capital Gains

NRIs can take advantage of two tax exemptions —Section 54 and Section 54EC —to reduce the tax they have to pay on long-term capital gains from selling a house property in India.

If the amount of tax withheld from your paycheck during the year is higher than your actual tax, you may request a refund of the difference at the year's end. If you'd rather not go through all the hassle, you can get a certificate to submit for a reduced TDS rate.  

Remember that you must fill out an application before signing any contracts. After determining the capital gains, the investigating officer will determine the TDS. If you do this, you won't have to wait for a return but can use the money immediately.

Tips for NRIs Buying Property in India

NRIs are allowed to buy property in India under the Foreign Exchange Management Act (FEMA). However, the same comes with a few limitations.

For instance, the property can't be agricultural land, a farmhouse, or a plantation. If you were to receive a property as a gift or inheritance, you would need permission from the government and the Reserve Bank of India (RBI) to become the official owner of the property.

RBI Rules For NRIs

The Reserve Bank of India has issued the following guidelines regarding the management of property by NRIs:

• NRIs can make payments on real estate purchases.
• Using an NRE/FCNR(B)/NRO account, an NRI can send money from outside India into an Indian bank account through the regular banking system.
• Aside from the methods authorized by the RBI, you cannot pay with a foreign currency note or traveller's cheque.
• If you have purchased a property through general permission, you do not have to submit any paperwork to the RBI.
• The NRI account should be used to make all payments in Indian rupees through the usual banking procedures.

Tax Implications

There are a few tax considerations when you buy a property in India:

• First, determine the seller's residency status in accordance with the Income Tax Act. Foreign nationals who have purchased an immovable property in India are required to withhold the TDS, the amount of which depends on the seller's residency status and the nature of the capital gains.
• If you buy an Indian resident's immovable property for more than Rs 50 lakh, the NRI's purchase of the property will trigger a TDS obligation of 1% of the transaction price.
• Long-term capital gains trigger a 20% TDS deduction for any property purchased from a non-resident.
• Home loans of up to 80% of the property value are available to NRIs.
• If you've made any short-term capital gains, you'll likely be subject to a TDS of 30%.
• The withheld tax must be deposited within 30 days of the deduction date. A TDS penalty of 1% per month will be assessed if tax isn't levied on time.

Ways to Reduce Tax

You can avoid paying capital gains and income taxes on property sales and purchases by meeting the requirements of Section 54 of the IT Act. Whether you intend to live in the house or rent it out, you may qualify for a tax exemption. In this case, the exemption will only apply to the capital gain from the sale and not the total value of the sale itself.

If the purchase price is lower than the stamp duty value of the property, the difference is taxable in the hands of the buyer. In addition, the buyer needs to obtain a Tax Deduction and Collection Account Number (TAN) to withhold taxes.

 => Read Also:- Buying a Property Near an Airport: Understanding The Pros and Cons

Conclusion

When an NRI buys or sells a property in India, it is important to know the laws and rules about TDS on NRI property. Whether you're a buyer or a seller, it's important to know the property's residential status, the type of property, and how long it has been held. This information will help figure out what the TDS rate will be.

For a property transaction to go well, you also need to get a TAN and keep track of the TDS certificate and form 16A. With Adani Realty, NRIs can be sure they will get the best help and advice to help them buy or sell property in India.