Unveiling Income Tax Rules for NRIs: Read About These Income Tax Rules Before Selling Properties in India

Discover the essential rules about NRI taxation and how to save yourself from penalties while selling house propertiy!

NRI taxation

When it comes to selling properties in India, the basic principle is quite simple; you need to pay Tax Deducted at Source (TDS) as the seller. It is a ground rule, whether you are a resident or an NRI. But it may require a bit more knowledge when you are digging deeper into NRI taxation in India.

Selling property comes under the concept of capital gains. The Government of India charges a certain amount of tax on both long-term and short-term capital gains. 

Let's now discuss the income tax payable by NRIs in detail.

  • Tax implications for NRIs depend on the type of capital gain.
  • NRIs can apply for a tax exemption.
  • The buyer is liable for deducting TDS.
  • Failing to pay TDS can result in a penalty.

Types of capital gains and their prescribed taxation

In simpler terms, if you are selling any property after two years, it comes under long-term capital gain. Otherwise, it will be a short-term capital gain for holding properties for two years or less. The former one is taxed at 20%, while the latter will be taxed as per your existing NRI income tax slab rates.

How much is the TDS Deductible for NRI sellers?

The buyer of the property is liable for charging a TDS deductible of 20%. In case the NRI sells the property before a period of two years, the buyer shall deduct TDS at the rate of 30%.

Also Read: NRI Rental Income And Advance Tax: What You Need To Know

Can you apply for a tax exemption?

The good news is that you can apply for an exemption under section 54, section 54F, and section 54 EC in case of long-term capital gains. Notably, you must reinvest your long-term capital gains in certain National Highways Authority of India (NHAI) or Rural Electrification Corporation (REC) authorised bonds to avail the benefits of exemption under Section 54 EC. However, these bonds generally have a lock-in period of 5 years.

Also Read: What Are The Top Reasons Behind NRI Investors' Real Estate Investment In India?

NIL/lower deduction certificate

If you find that the TDS is more than your tax liability, you can obtain the NIL/lower deduction certificate before the sale execution. In this case, an income tax officer will calculate the actual TDS based on the capital gain.

Defaulting TDS

The buyer is liable for a penalty in case he/she failed to pay the prescribed TDS. The seller will also be forbidden to repatriate the sale amount to the NRE account.

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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.


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