Income tax rules for NRI when selling property in India are subject to the provisions of the Income Tax Act, of 1961. The tax implications can vary based on factors. The factors such as the type of property, holding period, and the NRI’s tax residency status. Here are the key points to consider regarding Income tax rules for NRI when selling property in India:
Key points:
When an NRI sells property in India, they are liable to pay capital gains tax on the profit made from the sale. There are two types of capital gains. One is short-term capital gains (STCG) and long-term capital gains (LTCG), each with different tax rates and calculations.
Short-Term Capital Gains (STCG): If the property is held for less than 24 months before selling, the gains are considered short-term. STCG is added to the NRI’s total income and taxed according to the applicable income tax slab rates.
Long-Term Capital Gains (LTCG): If the property is held for 24 months or more, it is considered long-term. For immovable property, the holding period is extended to 36 months. LTCG is subject to a flat tax rate of 20% with indexation benefits. Indexation accounts for inflation over the holding period and reduces the taxable gains.
TDS (Tax Deducted at Source): When an NRI sells property in India, the buyer is required to deduct TDS from the sale proceeds. So, the TDS rates are 20% for LTCG and can be around 30% for STCG. The buyer needs to obtain a Tax Deduction and Collection Account Number (TAN) and comply with TDS regulations.
NRIs can claim exemptions under Sections 54 and 54F of the Income Tax Act to reduce their tax liability on LTCG. These exemptions are available if the NRI invests the sale proceeds in another residential property. It is also specific bonds within the specified timeframes.
Additional Points:
If the NRI’s resident country has a Double Taxation Avoidance Agreement with India, the provisions of the treaty may impact the taxation of capital gains. NRIs can benefit from lower tax rates or exemptions based on the treaty’s terms.
NRIs need to determine their tax residency status for the financial year in which the property is sold. This status can influence the applicable tax rates and reporting requirements.
NRIs must file their income tax returns in India if their taxable income exceeds the basic exemption limit. Even if TDS has been deducted, filing returns is necessary to claim any refunds or exemptions.
Form 15CA and 15CB: For remittance of sale proceeds, NRIs need to submit Form 15CA and obtain a Chartered Accountant’s certificate in Form 15CB to ensure compliance with Reserve Bank of India (RBI) regulations.
It’s crucial for NRIs to understand and comply with these income tax rules to avoid any legal issues and to optimize their tax liability when selling property in India.
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