Indian real estate Taxation Rules that NRIs should take into account while selling property in India

The Indian real estate market has always been attractive to NRIs looking to invest. In recent years, there have been numerous investment opportunities that cater specifically to the needs of NRIs. While buying property in India is a popular investment choice, selling these assets can be a complex process with important tax implications. NRIs who sell property in India are required to pay taxes on the capital gains they make. If the property is sold within two years of purchase, it is considered a short-term capital gain (STCG) and taxed according to the NRI’s income tax slab rates. If the property is sold after two years, it is considered a long-term capital gain (LTCG) and taxed at a flat rate of 20%.

To calculate the capital gains, the formula used is as follows: STCG = Final Sale Price (Cost of Acquisition + Home Improvement Cost + Cost of Transfer); and LTCG = Final

Sale Price (Indexed Cost of Acquisition + Indexed Cost of Improvement + Cost of Transfer). Tax Deducted at Source is also applicable when selling property in India. For NRIs, the TDS rates are 30% for STCG within two years of purchase and 20% for LTCG after two years. It’s important to note that TDS is calculated on the sale value of the property, not the capital gains. There are also additional surcharges and cess based on the sale value.

To lower the TDS amount and avoid the refund process, NRIs can apply for a TDS certificate from the Income Tax Department. This should be done before the execution of the sales deed, as the TDS rate will be determined based on the calculation of capital gains. Having an operative PAN Number is essential for NRIs selling property in India, as it is required to apply for a Lower TDS certificate. It is recommended to ensure you have an operative PAN to avail tax return benefits.

One strategy to save on capital gains tax is to reinvest the proceeds in another property. NRIs can invest the capital gains in residential property within two or three years from the date of sale, depending on whether it is an under-construction property. There is also the option of investing in Capital Gains bonds issued by NHAI and Rural Electrification Corp. To navigate the complexities of selling property in India as an NRI, it is advisable to seek guidance from a tax consultant. Staying informed about the latest tax rules and property market trends is crucial to ensure profitable and compliant property transactions in India.