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Is it possible to sell property in India if you are a Non Resident Indian (NRI) currently living in the US? The answer is yes but the process can be cumbersome. Often selling the property isn’t the hardest part. Getting the funds to the US is tricky and the sale may have unanticipated tax implications.
Here’s a quick guide to the most crucial steps involved in the process of selling a home in India while you are halfway across the globe! – from selling the property to receiving the proceeds.
Getting the Paperwork in Order Should Be A Top Priority
Here’s a list of the common documents you’ll need to sell a property in India:
1. Title of the property which should be in the seller’s name
2. No objection certificate (NOC) showing that the property is not under litigation and it is free from debts (or liens)
3. Occupation certificate (OC) from the municipal corporation in India
4. Plan approval or sanction certificate
5. Cooperative share certificate – for properties in a society building
6. Seller’s Permanent Account Number (PAN), India’s version of the Tax Identification Number
7. Non-Resident Ordinary (NRO) bank account. An NRO is a savings or current account that Non-Resident Indians (NRI) maintain to manage the income earned in India. The sales proceeds from the sale of your property will be deposited in this account as dictated by the Foreign Exchange Management Act (FEMA). FYI: This NRO account may be considered a foreign financial account subject to US FBAR regulations. You’ll need to file FinCEN Form 114 if the aggregate value of your investments exceeds $10,000. You may also have to file Form 8938 to satisfy Foreign Account Tax Compliance Act (FATCA) requirements if the value of your investments exceeds this threshold:
$150K (joint filers) or $75K (single filers) anytime during the tax year
$100K (joint filers) or $50K (single filers) on the last day of the tax year
What If I Won’t Be In India For The Sale?
If you won’t be in India for the sale of the property, you can designate a representative through a power of attorney. Many NRIs opt for brokerage firms to help with the process of selling a property. Some places to find brokerages firms in India include NRI India Services and Brokers ADDA, among others. These firms usually charge 2% of the sales price plus 18% goods and services tax (GST). You may also have to pay for out-of-pocket expenses which include fees for tax consultants and legal services.
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What Should I Know If I Have Inherited The Property And Am Trying To Sell It?
If you are a Non-Resident Indian, you can sell the property to a Resident Indian without restrictions. If the buyer is a Non-Resident Indian or a Person of Indian Origin (POI), you may need the approval of the Reserve Bank of India (RBI). You are not allowed to sell the property to a foreigner.
If you are an NRI but you inherited the property when you were a resident of India, you have more control on how to sell, rent, gift or transfer the inherited property. As an NRI, you will only be subject to the capital gains tax when you sell the inherited property.
Related Article: Do I Have To Pay Taxes On Inheritance From A Foreign Relative?
Paying Capitals Gains Tax is a Must, But There Are Exceptions
As a general rule, when a Non Resident Indian (NRI) sells a property, tax deducted at source (TDS) apply. TDS is a type of tax withheld by the buyer from the purchase price of the property and remits the tax to the Indian government.
For properties held by the NRI for fewer than 2 years, sales proceeds are treated as short-term capital gains and taxed at 30% by the Income Tax Department in India. Properties held for more than 2 years will be taxed at 20% plus applicable surcharge and cess. Cess is a tax for a specific purpose charged on top of the applicable tax. For 2018-19, applicable cess is 3%, so long term capital gains tax rate becomes 20.6%.
You may apply for a deduction at lower rates or no deduction of tax from the Assessing Officer of the Income Tax Department. If the officer determines the request to be justified, you will receive a certificate for a lower tax deduction or non-deduction of tax.
You may also be exempted for paying long-term capital gains under a provision called Section 54 if you use the proceeds to buy a property or invest in certain bonds.
Take note that NRIs are only liable for taxes on capital gains. Since TDS is based on the sale price, there are instances where TDS is higher than the NRI’s tax liability. For instance, if you sold the property at a loss but the buyer already paid the TDS, you would have a zero tax liability and you may be able to ask for a refund to claim the TDS you paid.
If this happens, you’ll need to request a refund from the Income Tax Department.
Sales Proceeds Have to Be Paid in India and Repatriating Funds Can Be Tricky
After selling the property, you need to get 2 certificates from a Chartered Accountant in India if you are sending the proceeds outside the country. These certificates are Form 15A Declaration of Remitter and Form 15CB Certificate of an Accountant. You need these forms to verify that your money is from legal sources and that all taxes have been paid.
Some banks will also request additional documents such as the sale documents or the will for the inherited property.
As a general rule, you can transfer a maximum for $1 million from your NRO to a US account in a financial year, which is from April to March in India. This limit applies if you inherited the property or purchased it from funds from your NRO account. You need the approval of the Reserve Bank of India before you can remit funds exceeding the $1 million limit.
You will need to get the special permission from the Reserve Bank of India if the property was inherited from another NRI.
US Tax Implications Of Your Property Sale In India
If you are a US resident alien, you need to declare Capital Gains on Losses on the sale of your property in India under Section D of Form 1040. You can deduct the amount paid for gains tax paid in India to the capital gains tax owed to the US government since the two countries have a Double Taxation Avoidance Agreement.
If you did not pay capital gains tax in India because you reinvested the proceeds, you will still be liable for the full amount of the capital gains tax due in the US if you are a US resident.
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Expert Advice Recommended
Selling properties usually have tax consequences and a foreign property adds another layer of complexity. For tax purposes, it’s better to sell properties from January to March. India’s financial year ends in March while US taxes follow the calendar year. Each sale is unique, so tax implications and other issues could also differ. So, before deciding when to sell, consult an expert to see possible tax remedies and bring transaction costs down. With different authorities involved, we suggest having a Chartered Accountant in India and a financial and tax advisor like MYRA in the US to assist you through the process.