It is a complex and daunting task to take care of a residential property, especially when you live abroad. NRIs often find it challenging to manage a house having to stay in a foreign land for many years- this leads them to sell their property in India. While taking care of this decision seems like an enormous task, the bigger challenge is to take care of tax-related matters. You sure can be a genius guy but with constantly evolving tax laws, it is difficult to know all about it. This means you must get in touch with an expert who will help with NRI selling property in India taking care of everything ensuring a smooth journey.
Now, whom to sell the property to? Firstly, you need to understand that being an NRI, you cannot sell the agriculture land, farmhouse, plantation property to another PIO (Person of Indian Origin) or NRI. However, you sure can sell commercial as well as residential property to any person residing in India or even a NRI and PIO. NRIs have to pay tax on the Capital gains that they will make from selling the residential property. However, in case you decide to sell the property within the two years of the date of purchase, the STCG (Short-Term Capital Gain) Tax rate will be applicable. STCG rates are applicable as per the income tax slab rate for the NRI in India. Now, in case you decide to sell it after two years from its time of purchase, 20% of LTCG (Long-Term Capital Gains) tax will be applicable. One can also know more about a low-interest home loan.
So, you should know that in case an NRI has inherited the property, the cost of the property for the previous owner becomes the ground for CGT (Capital Gains Tax) calculation. There is a lot of confusion about tax implications for NRI who wish to sell their property in India. Well, this post will help you understand all about it as we will discuss how much tax is payable and the TDS deductible for those who are selling their property. now, the tax that is payable on the gains is based on whether it is STCG (Short-Term Capital Gains) or LTCG (Long-Term Capital Gains). Whenever a residential property or a house is sold, after a period of two years from the date of purchase, as we mentioned earlier, it is considered a long-term capital gain.
When it comes to tax implications, NRIs must know that if the property is inherited, they need to remember or have valid proof of the property and its date of purchase to calculate the Capital Gain. Long-term capital gains impose about 20% whereas the short-term gain will be taxed on the basis of income tax slab rate for NRI. Now that we have discussed the CGT, let’s discuss the TDS deductibles.
When an NRI is planning to sell the property, the buyer will be liable to deduct about 20% of TDS. However in case, the property has been sold for more than 2 years, a TDS of 30% will be applied. Now, let’s get down to the real question, how can one save tax on Capital Gains? So, NRIs have the permit to claim exemption under two sections- Section 54 and Section 54EC but on Long Term Capital Gains from selling the house property in India. There are certain ways for one to avoid paying tax when selling a house. In case you use the gain from the house you sold to buy another home within two years or even construct one from scratch within three years, there is no need for you to pay tax. This is applicable only when you buy another house a year before selling the first property but it is important for the property to be bought in the name of the seller.
NRIs can plan to invest the capital gains in bonds that are issued by the NHAI (National Highway Authority of India) or even the REC (Rural Electrification Corporation) that is redeemable after five years. There is, however, a maximum limit of fifty lakhs. Now to claim the exemption, you are required to invest within the sex months of the sale of the property. Now, how can one avoid the double tax, many countries tax the income of one despite where it initiates or originates from. Some provide specific or even total exemption on capital gains that comes from the sale of residential property.
Well, if you, as an NRI, are planning to sell a property in India or buy one, you can get in touch with us. We, at Connecting NRIs, have years of experience under our hood helping NRIs with property, banking, and auto needs in India. We can help to get NRI housing loan, property management services, expertise, and more. Contact us!
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