Selling property in India? Don't miss these NRI tax essentials

Capital gains taxation rules for NRIs: Are you an NRI planning to sell your property in India? You can easily get confused with complex web of taxation rules surrounding this process. Capital gains, profits me from property sales, are subject to different tax rates based on wher property was held for a short term or a long term, say experts.

" Indian real estate market has long been a magnet for investments from global Indian diaspora, with Non-Resident Indians (NRIs) actively participating in purchasing residential and commercial properties across country. However, while buying property in India has been an enticing prospect, selling se assets comes with intricate tax implications that require careful planning and understanding to ensure compliance and optimise profits," said Gunjan Goel, Director, Goel Ganga Developments.

Taxation rules for NRIs: Capital gains and TDS

Short-Term Capital Gains (STCG) tax rates are applied if property is sold within two years of acquisition and are calculated according to NRI's income tax slab rates. On or hand, Long-Term Capital Gains (LTCG) tax at a rate of 20 per cent applies if property is sold after two years.

calculation of se gains involves taking into account several variables, including property's final sale price, cost of acquisition, home improvement costs, and cost of transfer. For long-term gains, indexed costs of acquisition and improvement are factored in, reflecting impact of inflation.

Tax Deducted at Source (TDS) is anor critical aspect. While Indian residents face a 1 per cent TDS rate while selling property, NRIs encounter a higher rate. Within two years of purchase, a 30 per cent TDS rate is applicable for STCG, whereas a 20 per cent TDS rate applies for LTCG if property is sold after two years. However, it is important to note that TDS rates are calculated on property's sale value, not capital gains.

Strategies to manage TDS and tax saving

"To manage TDS and potentially lower it, NRIs can apply for a TDS certificate from Income Tax Department before property sale transaction is executed. This certificate will determine TDS rate based on calculated capital gains, allowing for smoor compliance and potential savings," said Amit Gupta, MD, SAG Infotech.

"Obtaining an operational Permanent Account Number (PAN) is a prerequisite for significant transactions in India. An operative PAN is necessary for applying for a lower TDS certificate, ensuring NRIs can benefit from tax return vantages," Gupta ded.

Tax saving opportunities

"A savvy approach to reduce capital gains tax is reinvestment. NRIs can reinvest sale proceeds in anor property, reby deferring or eliminating tax liability. Under Section 54 of Income Tax Act, if entire capital gain is invested in a residential property within two to three years of sale, gains can be exempted from tax. This exemption is available for one residential property purchase in India," said Arpit Suri, CA and personal finance expert.

ditionally, Section 54EC offers an opportunity to save tax by investing capital gains in specific bonds issued by entities like National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC). "se bonds have a lock-in period, and gains remain untaxed if investment is me within six months of property sale," Suri ded.

Given complexity of country's real estate taxation landscape, experts vise NRIs to seek guidance from tax consultants. Factors such as property value, holding period, and reinvestment play pivotal roles in NRI property sales. By partnering with experts, NRIs can navigate se challenges and ensure both profitability and regulatory compliance in ir property transactions.