Selling Ancestral Property in India: A Simple Guide for NRIs

Introduction

Selling ancestral property in India can feel overwhelming if you’re an NRI. There are a lot of rules and paperwork involved, making it more complicated than selling regular property. But don’t worry! If you know the key points to keep in mind, the process becomes much simpler.

In this article, I’ll explain the essential things you need to know—like figuring out the property’s cost, dealing with tax deductions, and handling ownership details.

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1. Figuring Out the Property’s Cost

The first thing you need to do is figure out the cost of the property. This can be tricky with ancestral properties because they’ve often been passed down for generations, and most people don’t know what their ancestors paid for them. However, knowing the cost is important for calculating capital gains tax.

What You Can Do:

• Get a Valuation Report: If you don’t know the original purchase cost, hire a professional valuer to assess the property’s worth. This valuation report will act as the purchase cost when you’re filing taxes.

Why It Matters:

• For NRIs, capital gains are calculated as the sale price minus the purchase price, with no indexation benefit. If you don’t have a purchase cost, things can get complicated. That’s why having a valuation report is very helpful.

Thinking About TDS (Tax Deducted at Source)?

When NRIs sell property in India, the buyer has to deduct TDS at 20% (plus surcharge and education cess). If the sale amount is large, you might want to apply for a lower TDS. To do this, you’ll need:

1. The sale agreement showing how much you sold the property for.

2. The valuation report as proof of the purchase cost.

It’s smart to get the valuation report before you start looking for buyers. It’ll save you from a lot of hassle later on.

2. Handling Jointly Owned Property

If the property is jointly owned—for example, with your parents or their siblings—things get a bit more complicated. You need to sort out who owns what before you can sell.

What You Should Do:

• Get a Family Settlement: If the property is shared, consider creating a family settlement. This document should clearly outline who owns how much. It prevents disputes and makes the selling process smoother.

Why This Matters for TDS:

• The income tax department won’t issue a lower TDS certificate if the ownership details aren’t clear. Proper paperwork helps determine the correct TDS amount and makes tax filing easier.

By handling joint ownership early on, you’ll avoid a lot of legal and tax complications later.

3. Let Your Resident Parents Handle the Sale

If your parents still live in India, it’s often easier to let them handle the sale instead of doing it yourself. Here’s why:

Benefits of This Approach:

• No 20% TDS: When residents sell property, they don’t have to pay the 20% TDS that applies to NRIs. After the sale, your parents can transfer the money abroad and pay 20% TDS on that amount—which they can later claim back when filing tax returns.

• Less Paperwork: Transferring the property to your name first requires a lot of extra paperwork and possibly multiple trips to India.

Letting your parents handle the sale saves you time, legal hassle, and tax complications.

4. What If Your Parents Are Non-Residents?

If your parents are also NRIs, it’s still better if they handle the sale directly. While you won’t save on TDS, you’ll avoid the extra step of transferring the property to your name.

Why This Helps:

• Simpler Paperwork: Selling the property directly under your parents’ names avoids the need for extra legal documents.

• Saves on Legal Costs: Transferring property titles is both time-consuming and costly. By keeping the sale under your parents’ names, the process is much simpler.

If your parents can come to India for the sale, this approach can save a lot of unnecessary hassle.

Extra Tips to Keep in Mind

• Power of Attorney (PoA): If you can’t travel to India, consider giving Power of Attorney to a trusted person. Make sure it’s registered in India to avoid legal issues.
• Repatriation of Funds: NRIs can send up to USD 1 million per financial year from the sale of property, as long as all taxes are paid. Make sure to follow RBI guidelines for a smooth transfer.
• Capital Gains Account Scheme: If you want to save on capital gains tax, consider investing the money in another property or in Capital Gains Bonds within the specified time.

Conclusion

Here’s a quick recap of the important points to keep in mind when selling ancestral property as an NRI:

• Valuation Report: Get it in advance if you don’t know the original cost.

• Joint Property: Sort out ownership details with a family settlement.

• Resident Parents: Let them handle the sale to avoid 20% TDS.

• Non-Resident Parents: It’s still simpler if they manage the sale directly.

By keeping these tips in mind, you can save time, avoid complications, and make the whole process a lot smoother. Selling ancestral property might seem tough, but with the right planning, you can handle it with ease.