Sale of Residential/Commercial Property by NRI in India- Tax Implications, Documents Required

Want to sell property in India but don’t know if you are eligible for that.

If you are a Non-Resident Indian who wants to sell your property in India, you are at the correct place. Today’s article will be focusing particularly on the sale of residential/commercial property by NRI in India. Being an NRI doesn’t mean that you cannot buy or sell property in India. But it is pretty much obvious that you have to follow some special guidelines to sell or purchase property in India. Section 06 sub-clause 5 of the Foreign Exchange Management Act (FEMA) allows an NRI to sell their residential or commercial property. The property they desire to sell can be inherited by ancestors, bought by themselves from a person of Indian origin or NRI.

In the article, we will be discussing the different provisions for the acquisition and transfer of immovable property in India, tax connotation for an NRI who desires to sell property in India, and essential documents required for the transactionof sale by an NRI, etc.So read the article till the end to get a clear idea about the sale of residential/commercial property by NRI in India.

Important provisions for transfer of Immovable Property in India

An NRI or a person of Indian origin living outside India can acquire immovable property in India other than agricultural land, plantation property, or farmhouse by way of purchase or inheritance. He/she is allowed to sell that immovable property (other than agricultural land, plantation property, or farmhouse) to a citizen of India currently residing outside India, a person residing in India, or a person living outside India but traces its origin/inheritance from India.

However, if the NRI inherits an agricultural land, plantation property, or farmhouse from its ancestors and wants to sell it then such productive properties can only be sold to an Indian citizen permanently residing in India.

Method of payment for the acquisition of the property

The payment for the acquisition of the property can be made in the following ways: –

The funds that are received in India through normal banking channels. It can be obtained by way of inward remittance from any place of India.

Secondly, the funds that are held in any NRI account are maintained following the provisions of the Foreign Exchange Management Act (FEMA), 1999, or the regulations and provisions made by the Reserve Bank of India.

Prior permission provision for transfer of immovable property in India by the citizen of certain countries

As mentioned above an NRI can sell its property to an NRI or a resident Indian or a person of Indian origin currently residing outside India. But under no circumstances an NRI is allowed to sell its residential/commercial property to a person who has citizenship from Pakistan, Nepal, Sri Lanka, Bhutan, China, Afghanistan, Bangladesh, or Iran. As per the provision of the Government of India, no person who has citizenship from the above-mentioned eight countries shall acquire or transfer immovable property in India, other than the lease that too not exceed more than five years and has to take prior permission of the Reserve Bank of India.

Here you must know that foreign nationals residing outside India are not eligible for acquiring any property in India except the inherited property from ancestors. Being an NRI you should know that foreign nationals who acquire property in India through inheritance need the permission of the Reserve Bank of India before transferring or selling such property.

Regulations for sale of immovable properties by Foreign Embassies/ Diplomats/ Consulate General

If you are someone who belongs to a diplomatic background then you will be happy to know that personnel of foreign embassies, diplomats, and consulate general are also allowed to sell or purchase property in India. The people of foreign embassies,diplomats, and consulate generals can sell their immovable property other than plantation property, agricultural land, or farmhouse in India after getting clearance from the Government of India, Ministry of External Affairs.

Basic obligatory for a Non-Resident Indian to sell a property in India

An NRI is required to follow some primary requisites to sell a property in India they are as follows: –

Remember that being an NRI you can sell your immovable property (other than agricultural land, plantation property, or farmhouse) to a person of Indian origin, resident Indian, or NRI.

If an NRI owns agricultural land, plantation property, or farmhouse then he/she can sell such productive property to a resident Indian with Indian citizenship only.

Through the mortgage, an NRI is allowed to transfer/sell its residential or commercial property in India to a dealer or a housing finance institution.

However, the method of mortgage will be of no use if an NRI wants to sell its commercial or residential property in India to a party abroad. For serving this specific purpose the NRI needs to get permission from the Reserve Bank of India.

For more Info, Read out Purchase of Residential/Commercial Property by NRI in India

Tax connotation for an NRI to sell a property in India

Following are the tax implications for an NRI who desires to sell its commercial or residential property in India: –

If you are an NRI who wishes to sell your Indian property within the three years of its purchase then you need to have incurred a capital gains tax of 22.66%.

If the property you own is inherited then in such case while computing the long-term capital gains, the cost to the person from which the property is inherited would be considered as the cost of purchase.

Though all the Non-Resident Indians are subjected to a Tax Deducted at Store (TDS) of 22.66% on long-term capital gains but there are circumstances under which an NRI can get a waiver. For example, if the NRI is planning to reinvest the capital gains in some other property or tax-exempt bonds then they can get a waiver from Income Tax Department.

In case an NRI sells his/her property before completing the three years of purchase then short-term capital gains tax will be imposed on them at a Tax Deducted at Source (TDS) rate of 33.99%. Here you have the facility of applying for a tax exemption certificate under section 195 of the Income Tax Act. You can apply to the income tax authorities from where you hold the PAN along with the proof of reinvestment of capital gains.

Here you need to remember that if you choose to invest in bonds then being an NRI you will get 6 months and if you opt to invest in another property then you will get two years’ time. In case you are planning to get another residential or commercial property then you need to produce the payment receipt or allotment letter. And if you choose to invest in Bonds then you need to show an affidavit.

According to section 54 of the Income Tax Act if an NRI sells its residential property after three years of purchase and invests the amount of capital gains in bonds then he/she can be exempted from capital gains tax. But the bonds in which the capital gain is invested will remain locked for three years.

Besides this, if an NRI sells its residential property after three years of the purchase and decides to reinvest the received money in another residential property within the two years from the date of sale then the profit generated through the sale will be exempted to the extent of the cost of the new property.However, the NRIs can still claim the tax exemption under section 54 of the Income Tax Act.

Important documents required for the transaction of sale by a Non-Resident India

There are certain documents that an NRI needs for the transaction of sale, they are given below: –

Passport

The first and most important document on the list is the passport. Every NRI who desires to sell its residential or commercial property in India mandatorily needs to be a passport holder. The reason associated with such compulsion is that passport serves as identity proof and contains the name, citizenship, date of birth, and other important details of the person involved in the transaction.

Power of Attorney (POA)

If you are not able to make a physical visit to India for selling your property then you have to give Power of Attorney to your friends, family,or relatives. The Power of Attorney means that you are legally allowing them to make transactions and sell the property on your behalf. In simple words, if you give Power of Attorney to your friends, relatives, or family members then they will be signing the documents and agreements on your behalf. You can specify the rights exercised by your representative or issue a general Power of Attorney.

Address Proof

Being an NRI you are required to show proof of address in India as well as abroad. You can show your ration card, life insurance policy statements, electricity bill, telephone bill, etc. as your address proof. You need to have the same set of documents as the proof of residence abroad.

Allotment Letter

The allotment letter is very important as it confers that the property is of the said person who holds it. You can get an allotment letter from the society, builder, or any other relevant authority.

Approved Building Plan and Occupation Certificate

To sell a property in India you need to show a copy of an approved building plan and occupation certificate. It works as the proof that the apartment/property is occupied and is given out by the or the building society.

Encumbrance Certificate

An Encumbrance certificate works as an assurance to the buyer that the property or land doesn’t have any dues to legal authority. You should show an encumbrance certificate if you are selling a house, apartment, or land.

Documents from Society

If you own an apartment in a society then you need to show a letter from the society to resume the process of the sale. The document issued by society should state that you (the seller) don’t have any outstanding payments to the society and the apartment is fit for sale. Along with this you also need to submit a copy of your membership to claim your ownership of the property.

Sale Deed

The sale deed is the most important document as it serves as primary proof of ownership. It is a kind of agreement executed by NRI while transferring/selling the land in India.

Tax Returns

You must be aware that being an NRI if you are holding a property for a certain period and generating income from that property then the transactions become taxable. Under such circumstances, tax returns for the whole property-ownership period should be kept ready as they can be demanded anytime.

PAN Card

The majority of NRIs don’t pay any tax in India as their income is taxable in the country of their residence. But it would be wise to apply for a PAN (Permanent Account Number) card if you wish to sell property in India. You will need the PAN card while applying for a tax exemption certificate after the sale of the property.

Repatriation of sale proceeds of the NRI owned properties bought as residents of India

If the property you are selling is bought by you before moving out of India (i.e., at the time when you were a resident of India) then all the sale proceeds must be credited to the Non-Resident Ordinary (NRO) Account. In such circumstances, the individual is entitled to repatriate up to 01 million USD including all the other capital transactions per financial year (April-March). Such repatriation is restricted to the sale of two residential properties only.

Besides this, you can do such repatriation if you hold the property for at least ten years or more than that. In case you have kept the property for less than ten years then you are not eligible for the immediate repatriation of money. It simply means that you will need to keep the money in your Non-Resident Ordinary(NRO) account for ten years and after that, you can transfer it.

Repatriation of sale proceeds of the NRI owned properties bought as a Non-Resident of India

For remitting the money of the sale proceeds of the property you purchased after becoming an NRI you have to fulfil the below-given conditions: –

You need to ensure that the property must be purchased in compliance with the foreign exchange laws established at the time of purchase.

In any condition, the remittance can’t exceed the funds paid through the Foreign Currency Non-Resident Account (FCNR) in buying the property.

Besides this, the remittance cannot exceed the amount paid through Non-Resident External (NRE) account during purchase.

The rule of waiting for ten years to complete repatriation doesn’t imply on the properties bought by NRIs from the foreign currency.

The number of sale proceeds should always be credited to NRO (Non-Resident Ordinary) account in every case. Then only up to USD 01 million per financial year can be repatriated. Remember that such repatriations are allowed only for two properties.

You should always keep in mind that the repatriation can never exceed the amount of loan repayment made using foreign inward remittance or debit to a Non-Resident External (NRE) or Foreign Currency Resident (FCNR) account.

And lastly, the repatriation can never exceed the amount of foreign exchange remitted by the Non-Resident Indian (NRI) to India through normal banking channels for the purchase of the said property.

That’s it about the sale of residential/commercial property by NRI in India. Being an NRI has its pros and cons but in any sense, it doesn’t make you ineligible for purchasing or selling property in India. Though you are required to follow different guidelines compared to resident Indians in the end, it’s all worth it. We believe after reading the article you would have got a clear picture of the procedure for the sale of residential/commercial property by NRI in India.

If you still have any doubts regarding the repatriation of sale proceeds of the NRI-owned properties or the sale of residential/commercial property by NRI in India, please feel free to write your queries in the comment section. We will try to answer all your residential/commercial property sales by NRI in India queries at the earliest. For more useful articles like this please subscribe to the website. And don’t forget to write your valuable feedback in the comment section for further improvement.