Tax Implications for NRIs Selling Property in India

Summary: NRIs selling property in India must navigate tax obligations, repatriation rules, and compliance with international tax treaties. A TDS of 12.5% applies to long-term capital assets, increasing to 14.95% for sales exceeding ₹2 crores. Sellers can claim a refund by filing an income tax return or providing a lower tax deduction certificate under Section 197. Repatriation of proceeds from an NRO to an overseas account requires bank approval and supporting documents such as Forms A2, 15CA (Part C), and 15CB. Under the Liberalized Remittance Scheme (LRS), NRIs can transfer up to USD 1 million annually. There is no Tax Collection at Source (TCS) on property sale proceeds. Bank charges for repatriation vary, typically ranging from 0.75% to 1%, plus additional SWIFT or intermediary bank fees. To minimize capital gains tax, NRIs can invest in 54EC bonds within six months of sale, locking funds for five years. Interest earned on these bonds is taxed in India but exempt from TDS. Under the India-Germany DTAA, NRIs residing in Germany must declare Indian income and can claim tax credits to avoid double taxation. Proper tax planning ensures compliance and minimizes liabilities.

1. TDS Deduction on Sale of Property

• TDS Rate:
  • For sales conducted on or after July 23, 2024, the stand-alone TDS rate for long-term capital assets will be 12.5%. There will also be a surcharge of 15% plus tax, amounting to 4% cess of the income tax along with the surcharge.
  • If the sale amount is over ₹2 crores, the chargeable TDS will increase to 14.95% which comprises 15% surcharge along with 12.5% income tax and 4% cess.
• TDS Deduction and Refund:
  • The TDS on Sale of Property will not apply if the seller provides a certificate for lower withholding tax under Section 197 to the buyer. Rather the buyer will deposit TDS on the whole sale amount.
  • The Non-resident Indian selling their property should additionally file an Income Tax Return Request to retrieve their excess TDS.
  • Deduction is also available to the seller if they hold a TDS Certificate from the buyer Form 16A.

2. Repatriation of Funds from NRO to Overseas Account

Upon credit of the sale proceeds to the NRO account, the money can be placed into the foreign account with the approval of the Indian bank and the taxation regulations.

♦ Direct Repatriation from NRO to Overseas Account

• Under the LRS, NRIs can repatriate a maximum of one million USD per financial year.
• Required documents for repatriation:
  • Form A2 (Declaration for foreign remittance)
  • Form 15CA (Part C) – To be submitted to the bank
  • Form 15CB – A CA-certified tax clearance certificate

♦ Step-by-Step Process for NRO to NRE to Overseas Transfer

• Step 1: NRO To NRE Account: First sell your investments and move the sale amount to your NRE account after filling and submitting Form A2, Form 15CA (Part C), and Form 15CB to the bank.
• Step 2: Once the funds are in the NRE account, you can now transfer it directly to your overseas account through your online banking service, without requiring anything else.

3. Tax Collection at Source (TCS) Applicability

• TCS (Tax Collection at Source) is only applicable while repatriating money from NRO or NRE accounts, and thus in this case, is irrelevant.
• Since property sales by foreigners incur TDS, there need not be any further tax collection.

4. Bank Charges and Associated Costs

• Bank Charges for Foreign Transfers:
  • SBI and some other banks charge an additional 0.75% to 1% of the amount transferred in addition to GST.
  • Extra SWIFT charges or charges from a correspondent bank may also come in to play.
• No Additional Taxes:
  • Other than TDS, bank fees, and fund transfer costs, there are no other taxes to pay.

5. Investing in Section 54EC Bonds to Save Capital Gains Tax

In the case of NRE who does not wish to withdraw funds right away, investing in section 54 EC bonds allows claiming an exemption from the long-term capital gains tax.

• Purchase of NHAI/REC bonds within 6 months from sale date.
• The initial investment is kept aside for a period of 5 years.
• TDS on Bond Interest:
  • For Non-Residents Indians (NRIs), interest earned from these bonds are exempt from TDS.
  • The interest will be taxed as per the applicable rate in India.

6. Taxation in Germany Under DTAA (Double Taxation Avoidance Agreement)

• Declaration of Interest Income:
  • NRIs staying in Germany are required to report on their tax return all interest received from 54EC bonds.
• Tax Credit:
  • Under DTAA between India and Germany, NRIs are allowed to claim credit for taxes suffered in India to eliminate dual taxation.
  • When the tax charged in Germany exceeds the tax charged in India, the NRI has to bear the difference.

Key Takeaways

✔ TDS applies to the entire sale consideration unless a lower deduction certificate is produced. ✔ Funds can be taken out of India freely to the maximum of USD 1 million in a year by NRIs with the supporting documents.

✔ There is no TCS when transferring funds from NRO accounts to NRE accounts or to foreign accounts.

✔ 54EC bonds are a good investment for preservation of capital gains tax but they carry a five year lock-in period.

✔ Under the provisions of the treaty, NRIs have to report their Indian income on their tax return in their country of residence.

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For professional assistance and expert guidance, contact: Shubham Goyal | 📧 Email: casgpj@gmail.com | 📞 Phone: 8171582583

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. NRIs should consult a tax expert or financial advisor for personalized guidance.

(Republished with amednments)