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Tax Liability for NRIs Selling Property in India

As an NRI, have you considered selling or leasing your existing property in India? If “Yes”, make note of the arising tax liabilities…

A few decades ago, NRIs continued to hold onto the property that they owned in the land of their birth as a way of being attached to their roots. Due to the emotional attachment, rarely would he/she make the decision of selling it. However, with changing times, NRIs are now considering selling or leasing their homes. Before you undertake a similar exercise, it is important to know the tax laws to ensure that the taxman is not after you!

Capital gains on sale of house

The tax treatment on the capital gains would depend on the period of holding.

  • If you sell property in India within 36 months from the date of purchase: You are liable to pay short-term capital gains tax at the personal income tax rate applicable to you.
  • If you sell property in India after 36 months from the date of purchase: The arising long-term capital gains will be taxed at a flat rate of 20 per cent. Remember, for calculating long term capital gains, the indexed cost of acquisition should be deducted the sales proceeds received.

As per section 195 of the Income Tax Act 1961, due to your NRI status, the resident buyer will have to deduct Tax at Source from the sales proceeds and pay the balance to you.You can avoid the long-term capital gains tax on sale of property by investing the profit in capital gains bonds such as NHAI or REC or investing in another property in accordance with section 54/54 EC of the Income Tax Act 1961.


Tax on rental income

If you own more than one house, then, as per your choice one house will be considered as ‘sell occupied’ and the others would be considered as leased, irrespective of whether you have actually lease the property or not. Notional income will be computed on these houses which will be clubbed with your total income and will be taxed at the personal income tax rate applicable to you, if your income exceeds the threshold limit for that year. You enjoy a standard deduction of 30 per cent on the rental income.

Do not forget filing the wealth tax return

As an NRI, you are liable to pay tax for your wealth in India before which understanding NRI Income Tax laws is very important. Wealth tax is levied on the assets which are mentioned under the ‘Wealth Tax Act’, and one such asset is a residential house. Any one residential house is exempt from wealth tax. The other houses will be subject to wealth tax at the rate of 1 per cent in case the total wealth exceeds INR 30 lakh.

Note: Only provisions relating to direct taxes have been covered. No FEMA related provisions have been covered.

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