For Non-Resident Indians (NRIs), selling property in India comes with tax obligations, but understanding the available deductions and exemptions can significantly reduce tax liabilities. This blog explores tax strategies for NRIs selling property in India, including key tactics to minimize taxes on property sales, along with the implications of Tax Deducted at Source (TDS).
Understanding TDS Deduction on Property Sales
NRIs are subject to Tax Deducted at Source (TDS), which is deducted by the property buyer before registration. The TDS rates depend on the property value:
- Properties under ₹50 lakh: 20.8% TDS
- Properties between ₹50 lakh and ₹1 crore: 22.88% TDS
- Properties above ₹1 crore: 23.92% TDS
Using Form 13 to Reduce TDS
NRIs can file Form 13 under Section 197 of the Income Tax Act to request a lower or nil TDS deduction. This application is especially useful to:
- Avoid overpayment of TDS
- Reduce the burden of waiting for tax refunds
Once approved, the buyer applies the specified lower TDS rate, ensuring the correct amount is deducted based on the actual capital gains rather than the total sale price.
Key Tax Deductions and Exemptions for NRIs
1. Deduction for Expenses
NRIs can deduct certain expenses incurred during the property sale:
- Brokerage fees
- Legal fees
- Advertising costs These deductions reduce the taxable capital gains by subtracting the associated costs from the sale price.
2. Exemption under Section 54
NRIs can claim a tax exemption on long-term capital gains by reinvesting the proceeds into another residential property in India. Key conditions include:
- The new property must be purchased within one year before or two years after the sale of the original property.
- For under-construction properties, completion must occur within three years of the sale.
- If the cost of the new property is less than the capital gains, the remaining amount will still be taxed.
3. Exemption under Section 54F
This exemption applies to capital gains from the sale of non-property assets, such as land or shares. To qualify:
- Proceeds must be reinvested into a residential property.
- The purchase or construction must follow the same timelines as Section 54 exemptions.
4. Exemption under Section 54EC
NRIs can invest in government-approved bonds issued by organizations such as NHAI or REC.
- The investment must be made within six months of the sale.
- The maximum investment limit is ₹50 lakhs per financial year.
- These bonds have a five-year lock-in period.
- The interest earned on purchase of these bonds is taxable
Strategies to Save Capital Gains Tax
- Reinvesting Capital Gains: Utilize exemptions under Sections 54 and 54EC to reinvest in residential property or specified bonds.
- Capital Gains Account Scheme: Deposit sale proceeds in this scheme if immediate reinvestment is not possible. This allows NRIs to defer tax liabilities until reinvestment.
Conclusion
For NRIs selling property in India, leveraging tax deductions and exemptions can result in significant savings. By understanding provisions like Sections 54, 54F, and 54EC, and by using tools such as Form 13, NRIs can reduce tax burdens and streamline the process. To ensure compliance and maximize tax-saving opportunities, consult experts like Brivan Consultants, who specialize in tax strategies for NRIs selling property in India and can guide you through the complexities of property transactions and tax regulations. 【For more insights, refer to our blog on Essential Tax Guidance for NRIs Selling Property in India】.
