Property Purchase & Sale by NRIs & Repatriation of Sale Proceeds

Everything You Need to Know About the NRI Guidelines for Buying and Selling Property and Repatriating the Money

For non-resident Indians (NRIs), buying or selling immovable property in India and remitting the sale proceeds is not particularly difficult, but there are certain rules and regulations that must be followed during these transactions. These regulations are established by the Reserve Bank of India (RBI) and fall under the Foreign Exchange Management Act (FEMA). This article will cover the laws regarding property purchase and sale by NRIs, as well as the repatriation of sale proceeds, in separate sections.

Purchase of Property by NRIs

An NRI or Person of Indian Origin (PIO) is legally entitled to purchase residential and commercial property in India without prior permission from the RBI. There is no limit on the number of immovable properties they can purchase. However, under FEMA and RBI regulations, the purchase amount must be paid in Indian Rupees through standard banking channels or through NRI bank accounts.

NRIs and PIOs can also legally inherit property from a resident of India and keep it. However, they cannot legally buy agricultural land, land for planting, or farmland. They can, however, inherit and hold such property from a resident of India.

Property Selling by NRIs

An NRI can sell their Indian residential or commercial property that they purchased or inherited from an Indian citizen, NRI, or PIO. However, in the case of selling agricultural land, plantation property, or a farmhouse, the property must be sold to a resident of India. Repatriation of the sale proceeds to the NRI’s country of residence comes after the sale and must follow the guidelines laid down under FEMA by the RBI.

Repatriation of Property Sale Proceeds by NRIs (Purchased as a Citizen of India)

If you are selling a property that you purchased before moving abroad (when you were a resident of India), then the sale proceeds must be credited to your NRO account. You are entitled to repatriate up to USD 1 million per financial year (April-March), along with all other capital transactions, provided that you have paid all your taxes. Repatriation is limited to the sale of only two residential buildings.

This repatriation is only possible if you have owned the property for at least 10 years. If you have owned the property for less than 10 years, you cannot automatically repatriate the money. You must keep the money in your NRO account until the 10-year period ends, and then you can move it.

For example, if you sell a house after holding it for 8 years, you need to keep the sale proceeds in your NRO account for 2 years. After this 2-year period, you can then repatriate the money.

Repatriation of Property Sale Proceeds by NRIs (Purchased as a Non-Resident of India)

The sale proceeds of property purchased after you become an NRI can only be remitted outside India after meeting certain conditions:

• The property must be purchased according to the foreign exchange rules that were in effect at the time of purchase.
• The repatriation amount cannot exceed the amount of foreign exchange the NRI transferred to India for the purchase of the property through regular banking channels.
• The remittance cannot exceed the funds used for the purchase of the property from a Foreign Currency Non-Resident (FCNR) Account.
• The repatriation cannot surpass the amount of loan repayment made using foreign inward remittance or debit from Non-Resident External (NRE) or FCNR accounts.
• The remittance cannot exceed the amount paid through the NRE account at the time of purchase.

In all cases, the sale proceeds must be credited to the NRO account and can only be repatriated for up to USD 1 million per financial year. Such repatriation is only permitted for two properties.

The 10-year waiting period for repatriation does not apply to properties purchased by NRIs using their foreign funds.

Consult CA Arun Tiwari for more information at 📞 8080088288 or cs@aktassociates.com

Repatriation by NRIs of Sale Proceeds from Inherited Property

NRIs or PIOs can repatriate the sale proceeds of immovable property inherited from an individual living in India, as long as they can provide documentary evidence supporting their inheritance and the necessary tax clearance certificates from the Income Tax Authority. The maximum repatriation amount is USD 1 million per financial year.

Taxation on land transactions by NRIs

If the NRIs sell the property after three years from the date of acquisition, 20% of long-term capital gains will be incurred. The profits are calculated as the difference between the indexed purchasing cost and the value of the transaction.

The indexed purchasing cost is the inflation-adjusted purchase cost. In the case of inherited land, the date and cost of acquisition shall be considered to be the date and cost to the original owner for the purpose of determining the retention period and the cost of purchase. NRIs are subject to a TDS of 20%, according to legislation.

If the property is sold within three years of the date of acquisition, they are eligible for a 30 percent TDS short-term capital gain, irrespective of the tax slab. Short-term capital gains are calculated as the difference between the value of the sale and the purchasing cost. No income from indexation is applicable to short-term capital gains.

Tax Exemption on the sale by NRIs of Land

In some cases, NRIs are definitely eligible for a tax exemption. If after three years of purchase, they sell their property and reinvest the sales proceeds in another residential property within two years of sale, the proceeds will be exempted to the extent of the expense of the new property.

Investment in capital gain bonds is another instance of an exception. If after three years of acquisition and reinvestment of the proceeds in bonds of the National Highways Authority of India and Rural Electrification Corp. of India, NRIs sell their property within six months of sale, they will be exempted from paying tax on capital gains. The bonds are going to be locked in for a three-year duration.

The details alluded to above are meant to demonstrate the due process involved in the acquisition and selling of property by NRIs and the repatriation of the proceeds from the sale. To look at more detailed descriptions of such transactions, it is advisable to consult a specialist.

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