Are you an NRI planning to sell your real estate in India? Concerned about the operational and regulatory challenges involved? Don’t worry—it’s manageable with some preparation and knowledge.
Don’t worry—it’s manageable with some preparation and knowledge.
Selling real estate as an NRI is quite similar to the process for resident Indians, with just a few additional requirements.
In this blog post, we’ll guide you through every detail of selling your property in India. But before diving into the "how," let’s first understand what types of properties NRIs can sell in India and to whom.
As an NRI, you can sell your residential or commercial property in India to either a resident Indian, another NRI, or a Person of Indian Origin (PIO). You can also mortgage the property to a real estate dealer or a financial institution.
However, NRIs are not permitted to invest in agricultural land, farmhouses, or plantation properties. Any such property that you inherit can only be sold to resident Indians.
Most inherited properties have no restrictions on sales. However, selling property inherited from a person who is not of Indian origin may come with specific limitations.
The process for selling inherited property in India generally follows the standard procedures for any other NRI property sale. However, there could be additional rules regarding the repatriation of funds.
According to the Foreign Exchange Management Act (FEMA) Section 6(5), proceeds from the sale of inherited property cannot be taken out of India without approval from the Reserve Bank of India (RBI). In such cases, seeking professional advice is crucial to navigate these regulatory requirements effectively.
A common concern for NRIs is, “What if I cannot be in India to close the sale?”
For a smooth sale process, ensure all necessary paperwork is in order. Here is a list of documents you will need to sell your property in India:
Note: This list is not exhaustive; the required documents may vary depending on the property type and location.
Selling property in India as an NRI can lead to tax implications, particularly concerning capital gains. Here are some key points to consider:
The buyer will deduct a certain percentage of the sale price as Tax Deducted at Source (TDS) and pay it to the Income Tax Department on your behalf. The TDS rate depends on the property's type, value, and your residential status.
For sales on or after July 23, 2024, TDS on long-term sales is based on the new 12.5% LTCG rate (plus surcharge and cess); short-term sales are withheld at slab rates of up to 30%. The Long-Term Capital Gains (LTCG) TDS rates, including surcharge and cess, are:
You must pay capital gains tax if you sell property in India. The tax liability depends on the holding period—short-term or long-term capital gains.
If you sell the property after holding it for more than 2 years (previously 3 years), it is considered a long-term capital gain — taxed at 12.5% without indexation for sales on or after July 23, 2024 (the older 20%-with-indexation regime applies only to earlier sales). For properties sold within 2 years, gains are short-term and taxed based on your applicable income tax slab rate.
If you inherit a property, the date of purchase by the original owner determines whether it is a long-term or short-term gain. The property's cost is deemed to be the cost to the previous owner.
NRIs can claim exemptions under Sections 54, 54F, and 54EC for long-term capital gains from selling property in India.
Under Section 54 of the Income Tax Act, NRIs can claim an exemption on long-term capital gains from selling a house property by investing the gains in a new property.
Under Section 54F, you can claim an exemption on long-term capital gains from selling any capital asset except a residential house property.
Section 54EC allows NRIs to save tax on long-term capital gains by investing in specified bonds issued by entities such as the National Highways Authority of India (NHAI), Rural Electrification Corporation (REC), Power Finance Corporation (PFC), and Indian Railways Finance Corporation (IRFC).
For NRIs, a double taxation treaty with India ensures you don't have to pay taxes in both countries. However, you may need to report the sale to the Internal Revenue Service (IRS) even if no additional tax is due.
If you hold more than $10,000 in an overseas account at any point during the calendar year, you may need to submit an IRS Report of Foreign Bank and Financial Accounts (FBAR). Additionally, if you repatriate profits from the property sale, report this using IRS Form 3520.
Repatriation of sale proceeds is allowed for properties (excluding agricultural land, farmhouses, or plantation properties) if the following conditions are met:
Selling real estate in India as an NRI involves navigating tax implications and complying with various regulations. Each sale is unique, and factors such as property value, holding period, and fund repatriation must be carefully considered. Consulting with an investment advisor or chartered accountant in India, along with a financial and tax advisor in your country of residence, can help you make informed decisions and minimize costs.
No, NRIs cannot purchase agricultural land. However, if you owned it before your residential status changed or inherited it, you can sell it only to a resident Indian.
You can sell residential or commercial properties in India. The sale proceeds are subject to TDS, and capital gains tax applies based on the holding period. You can also repatriate the proceeds to your home country.
To avoid or reduce TDS, submit a NIL/lower deduction certificate to the buyer before executing the sale agreement. If TDS exceeds your tax liability, you can claim a refund when filing taxes.
The proceeds should be credited to your Non-Resident Ordinary (NRO) account.
Yes, provided the amount does not exceed $1 million in a financial year.
For more tailored advice, consult a tax pro at Taxagon.
Talk it through with a licensed US tax professional — we'll tell you honestly whether it applies to your situation.
