Taxation on property sale transaction by NRIs in India

Updated: Friday, April 18, 2014, 13:57 [IST]

Early 2013 witnessed a spurt in property sale transaction by NRIs mainly on account of constant increase in property prices in Indian metro cities. Though the taxation in case of property sale transaction for both resident Indian and Non-resident Indian is the same, there is some difference which needs to be paid heed to. So, for the knowledge of NRIs considering to sell their property in India, here is detailed the manner in which they will be taxed for such a transaction.

Long Term Capital Gains Tax:

A real estate property that qualifies as a capital asset shall attract capital gains tax. For both, resident Indians as well as non-resident Indians who sell their property in India after holding it for over three years, a long term capital gains tax @ 22.66% shall apply.

Capital gains= Net Selling price of the property- Indexed cost of purchase;

Net selling price of the property shall be arrived at by deducting the expenses which the NRI incurs from actual sale price. Expenses can include transfer fees, travelling fees, legal fees etc.

Lower or no tax deduction at source provision available for NRIs:

NRIs selling their property in India have the right to apply to the Income Tax Assessing Officer for a tax exemption certificate, for no deduction or deduction at a lower rate, that generally corresponds to deduction of TDS only on the capital gains.

The rationale behind the provision is that in case the TDS as well as the capital gains tax @ 22.66% is computed on the sale price, an NRI may eventually realize a lower sum than his actual investment. Hence, the provision boosts deduction of TDS only on the capital gains.

In case the tax department approves an NRIs application for the certificate, the buyer of the property can make the payment to the NRI in full i.e. the sale price and a certificate of TDS on capital gains shall be issued to the NRI separately.

For taking such an advantage of lower TDS, NRIs need to submit some documents with the tax authority, including PAN, sale-agreement of the transacted property, bank statements and IT returns among others.

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