How much tax NRIs need to pay after selling a property

It is important to keep in mind that both resident Indians and non-resident Indians are subject to taxation on any profits made by selling a property. How much tax you have to pay varies depending on whether the gains are long-term or short-term.

Long-term capital gains occur when a property is sold after being owned for at least two years (down from three years in Budget 2017). A short-term gain in value occurs when an asset is sold after being kept for two years or less. The inheritance of property by a non-resident Indian would also be subject to tax implications for NRIs.

Knowing how long you've been a property owner is a key factor in categorising any profits you've made. For properties that are being inherited, knowing when they were first purchased is crucial. To determine the fair market value of an inherited property, the amount the previous owner paid for it is used.

How Much Tax Must Be Paid?

Implications for Capital Gains

Taxes must be paid in India on any profits made by a non-resident Indian from the sale of any real estate. The amount of capital gain tax for NRIs on selling a property is conditional on how long the property was owned -

• If the NRI has owned the property for more than 24 months before the selling date, it will be taxed as a long-term capital asset at a rate of 20% plus relevant surcharge and cess. Gains on the sale of a long-term capital asset are calculated by discounting the indexed acquisition price and indexed improvement cost from the sale price. The government publishes a Cost Inflation Index to calculate such indexed charges.
• The property is subject to tax at the standard capital gains rate plus any relevant surcharges and cess if it has been held for less than 24 months before the date of sale of the property by NRI.
• If the NRI inherited the real estate, the acquisition cost would be the amount paid by the person from whom the NRI inherited the property. This cost will be used to figure out the capital gain tax for NRIs. For the same reason, whether a capital asset is regarded as short-term or long-term will depend on how long the NRI has held onto it and who the NRI inherited it from.
• If there is a Double Taxation Avoidance Agreement (DTAA) between the NRI's home country and India, the capital gains will be taxed at the lower of the DTAA rate or the rate outlined in the Indian Income Tax Act.

TDS Deductibles

• The resident buyer of immovable property will be required to withhold tax from each payment made to a non-resident Indian.
• TDS must be withheld at a rate of 20% plus any surcharges and cess that apply for long-term capital gains.
• Tax deducted at source (TDS) must be withheld from any profits made from the sale of short-term investments at the standard slab rates plus any surcharges and cess that may apply.
• If the amount of TDS deducted exceeds the amount of tax the NRI owes for the year, the NRI can request a refund when he files his income tax return.

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Strategies for Minimising Capital Gains Taxes

NRIs can take advantage of some exemptions when they sell an Indian home for long-term capital gains.

Partial Relief Provided by Section 54

This relief is possible if the sale of the property by NRI, whether it was used for personal use or rental income, results in a long-term capital gain. Your new home's purchase price may exceed the profit you got from selling an old property. Hence, you can use the money received from the sale of an old property to buy new properties. This way, you can save capital gain tax. However, only the total capital gain from the sale will qualify for the exemption.

You can purchase the (new) property either one year before the sale of the older property or two years after its sale. If the profits are used to finance the building of a new home, the work must be finished within three years of the sale.

Exception Permitted by Section 54 EC

The NRI can also invest in certain bonds as an alternative to using the funds to buy or build a home or to deposit in a bank. For this objective, bonds issued by the Rural Electrification Corporation (REC) or the National Highways Authority of India (NHAI) are required. These can be reclaimed after five years and cannot be sold for at least five years following the date of sale of the property by NRI.

This investment doesn't qualify for any other tax break. The NRI has six months to purchase these bonds, but to qualify for this exemption, the purchase must be made before the return's due date.

In addition, a non-resident Indian (NRI) can invest up to Rs 50 lakh ($75,000) in these bonds throughout a fiscal year.

Exception Permitted By Section 54F

This applies whenever a long-term gain is realised through the sale of an asset other than a primary residence. To qualify for this exemption, the NRI must buy a primary residence either during the year before the date of transfer or within the two years following the date of transfer. The transfer of a capital asset does not require the buyer to immediately purchase a home; the buyer can build a home within three years of the transfer date. However, this brand-new Indian home can't be put up for sale any sooner than three years after its acquisition or construction.

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Conclusion

This article is an attempt to provide an overarching understanding of the Capital Gain Tax for NRIs on selling a property. Each transaction requires its own unique set of legal and tax guidance. Please check out the Adani Realty projects if you're a non-resident Indian looking to make a property investment in India.