When NRIs purchase under-construction properties, they usually sign a Builder-Buyer Agreement with the developer. This document confirms their right to the property but does not constitute legal ownership. Ownership is only formalized once the title deed is registered in the buyer’s name during possession.
When can you sell such a property?
You can sell a property before title transfer under the following conditions:
- The building is nearing completion, or you’ve already received possession.
- The property is under a legally valid Builder-Buyer Agreement.
- The developer/builder allows the sale to a third party through assignment of rights.
2. Step-by-Step Process to Sell Property Before Title Transfer
Step 1: Review the Builder-Buyer Agreement
The Builder-Buyer Agreement is the foundation of your rights over the property. Carefully review the agreement to:
- Confirm clauses permitting transfer or assignment to a third party.
- Check if there are restrictions on selling before possession or title transfer.
- Identify any fees the developer may charge for facilitating the assignment process.
If unsure, consult a lawyer specializing in property law for clarity.
Step 2: Obtain Builder’s Consent
Most developers include a clause requiring written approval for transferring rights before possession. Here’s how to proceed:
- Request NOC (No Objection Certificate): Submit an application to the builder for consent to assign or transfer your rights to the buyer.
- Pay the Transfer Charges: Builders often charge a transfer or assignment fee (e.g., 1-2% of the property value). This fee can be negotiated depending on your relationship with the developer.
- Formalize the Assignment Agreement: Once the NOC is issued, draft an Assignment Agreement that transfers your rights under the Builder-Buyer Agreement to the new buyer.
Step 3: Execute a Power of Attorney (POA)
If you cannot be physically present in India to manage the sale, executing a Power of Attorney (POA) is essential. A POA allows a trusted representative to handle the process on your behalf.
- Drafting and Notarization: Prepare the POA document and get it notarized in your resident country.
- Attestation: Visit the Indian Consulate or High Commission to get the POA attested.
- Adjudication in India: Once the POA is sent to India, it must be adjudicated at the local sub-registrar’s office.
For more details on executing a POA, refer to Power of Attorney for NRIs Selling Property.
Step 4: Draft and Sign a Tripartite Agreement
A tripartite agreement involves three parties: the NRI seller, the buyer, and the developer. It ensures that:
- The buyer takes over the seller’s rights and obligations under the Builder-Buyer Agreement.
- The builder confirms the transfer and updates their records to reflect the new buyer’s details.
This agreement should include details like property specifications, payment terms, and the builder’s consent to the transaction.
Step 5: Tax Implications for NRIs Selling Property in India
When NRIs sell property in India, they are liable for Capital Gains Tax depending on the holding period:
1. Short-Term Capital Gains (STCG): If the property is sold within 24 months of acquisition.
- Tax Rate: Gains are taxed at the applicable income tax slab rate, which can be as high as 30%.
- TDS Deduction: The buyer must deduct 30% TDS on the sale value.
2. Long-Term Capital Gains (LTCG): If the property is held for more than 24 months.
- Tax Rate:
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- 20% with indexation for properties registered before July 23, 2024.
- 12.5% without indexation for properties registered on or after July 23, 2024.
- TDS Deduction: Regardless of the tax rate applied, TDS remains at 20% on the total sale value.
For detailed tax guidance, visit Essential Tax Guidance for NRIs Selling Property.
Why is TDS Critical?
If the seller does not obtain a Lower TDS Certificate (Form 13), the buyer must deduct TDS on the entire sale value, not just the capital gains. This can result in a large upfront deduction for the seller, leading to cash flow issues.
Step 6: Apply for a Lower TDS Certificate
To avoid excessive TDS deductions:
- File Form 13 under Section 197 of the Income Tax Act to request a lower or nil TDS deduction.
- This certificate ensures that TDS is deducted only on the actual capital gains, not the full sale price.
- Submit the certificate to the buyer, who will deduct TDS at the approved rate.
Step 7: Facilitate Payments and Legal Documentation
To ensure a seamless transaction:
- Payments should be made directly into your NRO account in India.
- Verify all property documents, including the Builder-Buyer Agreement, NOC, Assignment Agreement, and tripartite agreement.
- Ensure the buyer receives a TDS Certificate (Form 16A) as proof of tax deduction.
3. Common Pitfalls to Avoid
1. Lack of Builder’s Consent
Attempting to sell without the builder’s approval can render the transaction void. Always secure a written NOC before proceeding.
2. Unclear Legal Clauses
Failure to review the Builder-Buyer Agreement can lead to disputes. Ensure all rights, obligations, and penalties for premature transfer are clearly understood.
3. Tax Non-Compliance
Neglecting to address TDS requirements or failing to apply for a lower TDS certificate can result in financial losses and delays.
4. Misrepresentation of Ownership
Selling a property without a clear transfer of rights may lead to legal complications. Use a Tripartite Agreement to formalize the process.
How Brivan Consultants Can Help
Navigating the complexities of selling property before title transfer can be challenging for NRIs. Brivan Consultants simplifies the process with expert support, including:
- Legal Documentation: Drafting POA, Assignment Agreements, and Tripartite Agreements.
- Builder Coordination: Assisting in obtaining NOCs and handling negotiations.
- Tax Optimization: Helping secure lower TDS certificates and managing tax compliance.
- End-to-End Support: Ensuring a seamless, legally compliant property transaction.
Contact Brivan Consultants today to simplify your property sale and maximize your returns.
Conclusion
Selling property in India before the title transfer involves navigating multiple legal and financial steps. From obtaining builder consent and executing tripartite agreements to addressing tax implications, NRIs must proceed carefully to ensure compliance and avoid pitfalls. By leveraging professional expertise, NRIs can streamline the process and successfully sell property in India before title transfer for NRIs.
