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The real estate market in India is growing and non-resident Indians (NRIs) are playing a key role in it. Here, we look at basic rules and regulations governing sale of property by NRIs in India.

Income-tax on sale

Profits earned by selling property in India will be liable to capital gains tax under the Income-Tax Act, 1961. Capital gain is the difference between the sale value of the property and its cost of purchase. Capital gains can be classified as short term (up to 36 months) or long term (more than 36 months), depending on the period for which the property is held. Short-term capital gain will be taxed at normal slab rates and long-term gain will be taxed at 20%, subject to certain conditions.

How to reduce tax liability

Investing the sale proceeds in purchase/construction of another house property: If a residential property is sold after being held for more than three years and the proceeds are reinvested for purchase of a new residential property, then the capital gains will be exempt to the extent of the amount reinvested. The exemption is subject to the new property being purchased within a year before or two years from the date of sale, or if new property is being constructed within three years from the date of sale.

Investment in Capital Gain Account Scheme: If an NRI was not able to make the necessary investments, the Act provides that the amount can be kept in a nationalised bank under the Capital Gain Account Scheme before the due date of filing income-tax returns to avail the tax exemption. This amount is required to be utilised for purchase/construction of new property within a specified period.

Sale proceeds invested in certain bonds: NRIs can also claim exemption by investing the amount of capital gains in bonds issued by the National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC). Investment in the specified bonds is to be made within six months of such sale and there is a lock-in period of three years for such bonds.

Properties that can be sold

An NRI can sell any immovable property in India other than agricultural land/plantation property/farm house to an NRI, a Person of Indian Origin or a person resident in India under the Fema provisions. If an NRI has acquired an agricultural or a plantation land or a farm house by way of inheritance, it can be sold only to Indian citizens who qualify as residents of India.

Repatriation of money

An NRI who has sold a house property can repatriate the sale proceeds up to $1 million per financial year, provided all the taxes have been paid and a certificate to that effect has been obtained from a chartered accountant, subject to certain conditions.

Vineet Agarwal – VIA : The Indian Express

The author is a director in KPMG. The views expressed are personal.