Assets provide a safety net but can hold you back if you want to be globally mobile. With the pandemic highlighting the need to stay physically closer to one’s family and the many impediments to this, seniors whose children are abroad are increasingly exploring options. And a part of this may involve selling their property in India and keeping the funds liquid. These choices come with a lot of tax-related issues that can lead to financial implications, time and effort, as well as stress, if not managed well.

Plan ahead

Selling a home, especially a high-value one, takes time. Tax planning, such as reinvestment for property sale, requires effort. Understanding taxes in the foreign country and reconciling it with Indian rules calls for experts. And since all of these are needed for a smooth process, budget two years to complete the steps and repatriate the money. There may also be additional legal delays, especially if the property was inherited, such as for property title transfer, due to documentation hurdles at registrar offices.

There are broadly two categories of sellers to consider — those who are residents in India and plan to move and those who are already abroad. The process and steps differ widely. For example, residents are best advised to complete the sale and tax filings and then move. The advantage is that it will simplify things such as TDS on sale which is only required to be withheld for NRIs, dual tax implications and complexities in dealing with residency status (which can lead to quirky situations due to differing tax years between countries).

Another option that some explore is to redevelop the property — say, an old house to multiple units — with a builder. This is time-consuming and has the potential for murky tax interpretations by tax advisors and authorities. You can consider this only if you have good guidance from experts on the legal and tax aspects (including on property valuation) and the benefits outweigh the effort.  

For those who are already abroad, plan to file and account for all your assets and income in India much before the property sale. “There have been cases where non-disclosure of holdings has led to delays and even freezing of accounts during the time of repatriation of funds”, cautions Venkat Krishnamurthy, Chartered Accountants, V Ramaratnam and Company.

Non-resident issues

NRIs also have a few other tax and procedural issues to contend with. The common concern is on Power of Attorney, typically given to someone in India for completing the sale. The document is often only notarised but not registered. The right procedure is to get it attested by the Indian Consulate/Embassy concerned and register it in a sub-registrar’s office, to be legally valid.

Another operational issue concerns TDS for NRI sellers. Buyers are required to get a TAN ((Tax Deduction and Collection Account Number) and pay 20 per cent tax (plus surcharge) on the gains. The amount is deducted from the payment due to the seller. If the actual taxes are less (say, due to buying qualifying bonds), the onus is on the NRI to get the refund later. As this can lock up a lot of money, an alternative is to get a certificate from the tax authorities to allow lower TDS withholding, by filing Form 13.  This takes time and must be planned ahead to not delay the transaction for the buyer.

Sellers who file taxes in more than one country must also consider the financial implications due to differences in the handling of capital gains taxes in different jurisdictions. For instance, in India, long-term capital gains on property gets relief from indexation and tax may also be reduced or avoided by investing in qualified instruments with a defined lock-in period. These offsets, however, don’t extend to other countries and capital gains is determined per original cost basis, resulting in additional taxes to be paid. “In case of countries such as the US, there are also State taxes to consider, besides federal dues”, adds Venkat. He advises that NRIs work through the taxes for different options and sale timing to pick the one that is optimal for them.

For NRIs, under certain circumstances, repatriation amount for income from the sale of any immovable assets in India is capped at $1 million in a financial year. You need to submit a 15CB certificate from a Chartered Accountant to the bank to repatriate the money.

Other considerations

You can also consider gifting the property to a family member or others instead of selling it. The advantage of doing this early, rather than through a Will, is that the cost basis of the property is reset for the receiver and helps reduce tax at a later date (due to indexation). If the property is gifted to a non-relative, the recipient is required to pay tax on the market value of the property.

NRI property owners have some restrictions on selling. For instance, farmhouse, agricultural land or plantation property can only be sold to Indian residents. There is no such restriction for residential and commercial properties.

Property that is vacant may still attract taxes. Only one house that is owned will be treated as self-occupied for tax purposes and others will be treated as deemed to be let out. A notional rent is computed on it and must be reported for tax purposes.

The author is an independent financial consultant