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May 04, 2023
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Managing Property Sales for NRIs: Taxation, Fund Repatriation, and Regulations

Managing Property Sales for NRIs: Taxation, Fund Repatriation, and Regulations

For Non-Resident Indians (NRIs), disposing of properties in India can be a multifaceted process, encompassing aspects like tax implications, repatriation of funds, and NRO account regulations. Here are essential considerations to bear in mind:

1. NRO/NRE Account: NRIs can utilize an NRE account to repatriate foreign earnings to India in Indian rupees, while an NRO account serves as a savings account to manage income earned in India in Indian rupees.

2. Tax Implications: NRIs must adhere to Indian Income Tax laws when selling property. For NRIs selling property in India, the buyer deducts Tax Deducted at Source (TDS), which is 20% for Long Term Capital Gains Tax on properties sold after two years. If a property is sold within two years of purchase, the applicable TDS is 30%, inclusive of surcharge, health, and education cess. The LTCG TDS rates vary as follows:

a. Properties valued below INR 50 lakh: Total tax at 20.8% (including surcharge and cess)

b. Properties valued between INR 50 lakh and INR 1 crore: Total tax at 22.88%

c. Properties valued above INR 1 crore: Total tax at 23.92%

d. Properties valued between 2 crore and 5 crore: Total tax at 25%

e. Properties valued above 5 crore: Total tax at 37%

Note: When purchasing from a resident, there's no need to deduct TDS if the sales proceeds don't exceed INR 50 lakhs.

If the deducted TDS exceeds the NRI's tax liability, they can seek a tax refund at year-end. Alternatively, to simplify the process, NRIs can apply for a lower TDS rate by obtaining a certificate before executing the sale agreement. The assessing officer will calculate the TDS based on capital gains, putting the money directly into the NRI's hands.

NRIs can also explore tax exemptions for capital gains through investments in other residential properties, specific bonds, or startups under sections 54, 54EC, and 54F of the Income Tax Act, 1961, among other options. Double Taxation Avoidance Agreements (DTAA) provisions may also help avoid dual taxation.

3. Repatriation of Funds: NRIs can repatriate the sale proceeds to their country of residence after tax deductions. The annual repatriation limit for NRIs is approximately USD 1 million, equivalent to INR 8 Crores per person. To repatriate proceeds from property sales, one must submit Forms 15CA and 15CB. While Form 15CA can be self-filled and submitted, Form 15CB must be signed and submitted by an Indian chartered accountant