We have seen that many NRIs who want to sale of property in India, have to deal with many problems like finding the buyer for the property in India when you are living outside India or arranging all the legal documents. So if you are an NRI and want to sell the property in India then this article is for you. In this article, we will give you a comprehensive guide that how you will sell the property in India which may help you to save from many taxes which can very simplify the process.
We have divided the whole process into 2 Parts i.e. Steps that the NRI shall have to consider
- Before you identify the buyer and
- After you identify the buyer
When a person being NRI wants to sell the property in India, he has to face the TDS i.e. Tax deducted at the source which is 22.88% on the sale value of the property.
So for example: If you have sold a property in India of Rs.1 Crore, then the buyer will deduct the TDS almost 23% from such consideration and then such a buyer shall deposit it to the government account. Although, as and when you file your income tax return, you can claim it as a refund. However, why we have to go in such a long process when there is another provision that exists under section 197 of the Income-tax Act, 1961.
This section states that if you (NRI) feel that the gain on sale of the property is being less than 23% of the gross value then you have a right to apply for the lower TDS certificate to Income tax officer. Also, in case, if you are sure that there will be going to be a loss on the sale of property in India then you can also apply for the Nil rate of TDS certificate from the Income Tax department.
Note: if the property is being held by the NRI for a period more then 2 years then the gain on sale of such property shall be treated as Long term Capital Gain and if the property is being sold within 2 years from its purchase then the gain shall be considered as Short term Capital Gain.
The Tax rate on Long term Capital Gain is 20% which shall further be increased by the surcharge and Cess @ 4% which shall become approx. 23%.
If there is a short term capital gain then the normal slab rates shall be applicable which can be up to 30% which would be further increased by the surcharge and Cess @ 4% which shall become approx. 33%.
This is the brief about the tax implication on the sale of property in India by NRI. As you can see that the tax rate is very high i.e. almost 23% of the consideration amount shall be deducted by the buyer.
Now, as we proceed, you will come to know that how can we save the time and above specified taxes. So let’s start the stepwise procedure.
STEP 1: Consult an Expert Chartered Accountant
For NRI there are so many compliances that he has to follow for selling the property in India. So it is advisable for NRI to take the advice from a Chartered Accountant before entering into any deal of selling of property. It is a fact that before you approach a buyer if you consult a CA, he will give you value addition. Although, they will charge some amount for giving their consulting fees that are going to be worth it.
Note: Whether you can consult with any CA, then my advice to you is to consult those CA who are practicing in NRI taxation or international taxation because they are professional in this. They knew, what kind of problems can arise during the deal and how to tackle such issues.
Since it is a specialized field so If you took advice from any CA who is not dealing with these kinds of transactions on daily basis, then for this, he may have to study the facts and other provisions which may take some time, delay the process and this may not be benefited to you.
Our firm is handling these kinds of cases from the past 3 years and give consultancy to more than 500 NRI’s on the lower deduction of TDS or resolving the issues relating to the sale of the property.
Recently, there was a change in the provisions in the law which make it possible for the NRI to apply for the lower deduction of TDS or nil rated TDS certificate through online on the income tax portal.
STEP-2: Transfer your Permanent Account Number (PAN)
As we already know that PAN number is the alphanumeric number by which the income tax department can identify the taxpayer. However, you will be surprised to know that for the NRI taxation and International Taxation, the taxpayer’s jurisdiction would be different from the local jurisdiction and it shall be called international jurisdiction. Now, for applying the lower rate of TDS certificate or Nil rated TDS certificate, your PAN must be in the international jurisdiction. In most of the cases, it is seen that the PAN of NRI is lying in the local jurisdiction.
Hence if you are willing to apply for such a TDS certificate, then you must transfer your PAN number from the local jurisdiction to international Jurisdiction.
For this, you have to file 2 letter out of which one shall be sent to your existing Assessing officer which is in the local jurisdiction and request him to transfer your PAN to the international jurisdiction and the next letter file to international jurisdiction income tax officer and request him to issue NO objection certificate (NOC) that you have accepted such transfer of PAN from local jurisdiction officer.
The whole process can take almost 15 to 20 days, so if you do this before you have identified the buyer then it will save such 15 to 20 days because it has seen in many cases that the buyer has canceled the deal when the seller could not complete all the requirement of the deal within the prescribed time period agreed between you and them.
So, all these things can be done by a Chartered Accountant who is practicing in these kinds of transaction and you would not need to take any tension.
STEP 3: Collect your Documents
Though for applying the lower TDS or Nil rated TDS certificate, one has to attach many documents. Let me give you a brief about it. If you want to know about the complete list then you may send us the Email or What’s the app your query. Following are the list of documents that NRI would require for applying the certificate:
- Your Permanent Account Number (PAN Number)
- Original Purchase Agreement, i.e. title document of the said property.
- No objection certificate (NOC), issued by the said previous owner of the property.
- Copy of approved plan and occupation certificate, which would be issued by the appropriate authority, Municipal Corporation of development.
- If you have bought the property before the financial year 2000-01, then a certificate from the valuation officer or from stamp duty authority which specifies the value of the property.
- Other necessary Documents.
STEP 4: Finding a Buyer
Once you find your buyer then he will give you the token money and after that, you will enter into MOU i.e. you are agreeing with the terms and conditions on which you will sell the property to a buyer. Now, as and when you have entered into the MOU, you have to immediately ask the buyer for the TAN number.
Note: Do not confuse with the PAN number and TAN number. PAN number, as we above specified that it is an alphanumeric number by which income tax authority identifies you.
TAN number is a Tax account number which is used to pay TDS.
That means if you and your buyer do not contain the TAN number then you will not be able to apply for the TDS certificate. So even in the case, your income as per the computation of income is nil then also you have to get the TAN number.
STEP 5: Filing Online form Number 13
This step is the most crucial step in the whole process. In this step, you have to apply for lower deduction of TDS in form 13 to the income tax department as per section 197 of the Income-tax Act, 1961 and upload the above-specified documents along with the computation of Income as a supporting documents which states that the tax to be paid is much less than the 23% of the consideration value. When you have done this then only after verifying all the documents, the income tax officer shall issue the certificate.
In many cases, we have noticed that the department has delayed the issuance of certificate due to delay in receiving of TAN number or delay in receiving documents. These all happen due to coordination issues between buyer and seller. So, in this case, we are giving you a bonus tip.
If you are willing to get the lower TDS then you should try to appoint the same chartered Accountant for the buyer and for the seller because when there is the same CA, the process shall be sped up and faster and it would not get delay due to any communication gap. Hence, you may ask the buyer to have the same CA for this particular transaction so that the coordination would not become the issue.
Our firm is also offering the packages for the buyer compliance and seller compliance in which we will handle end to end compliance i.e. starting from the deal to the completion of the transaction.
STEP 6: Getting the lower or Nil rated TDS certificate
What would you do, once you received the certificate form the income tax department? You will have to send one copy of the certificate to the buyer and the buyer shall further send it to his bank and only after receiving such a certificate, the bank shall disburse the consideration amount to your bank account.
STEP 7: Transferring the money to your foreign Account
So, after the selling the property, you do not want to invest in India, then you will need a certificate from your chartered Accountant in form 15CB and once you get the attested copy from your CA, you have to submit the attested copy to your Bank and only after that bank will transfer the money to your foreign Account. Basically, this certificates implies that you have complied with all the laws and regulations, you have paid the taxes if any,
In case, if you do not want to send the money but you want to further invest in India, then there is a separate provision made for this. For example: if NRI has invested in certain bonds within 6 months from the date of transfer of property then he shall be eligible for the exemption as per section 54EC of the Income Tax Act, 1961. This is just an example. There are many other options are available in which you can save the tax by making the investments in certain schemes as mentioned in the Income-tax Act, 1961. You can refer our previous article for this but here let’s assume that you are transferring the money to your foreign bank account, so you just have to submit the form 15CA/15CB.
STEP 8: Filing your Income-tax Return
This one is the last step but most people forget to follow this. In this step, you have to file your income tax return. Once you received the money, your work is not over. You have to file the ITR stating all the details of the sale of property and compliance. This will also be done by your chartered Accountant. I told you this is the most forgettable step because of the time gap, so if you have sold the property in the month of September 2019, then you have to file the ITR for the AY 20-21 and mentioned all the details of such sale.
In the above steps, we have discussed in detail about the procedure that is required to be followed by the NRI at the time of selling of property in India. However, sometimes it is not feasible for him to manage all these things by residing abroad. In this case, he can make a power of attorney in the name of his relative or any other person who may reside in India. By giving power of attorney, you are authorizing him to do all the above-mentioned things on your behalf. Hence, it is necessary that you should transfer the power of attorney to that person to whom you have belief.
I hope this article has fulfilled its purpose and if you have any doubts then you can mail us or what’s app, we will always there to assist you.