Personal Finance

What NRIs selling a house must know

Meera Siva | Updated on November 29, 2020 Published on November 29, 2020

Ignoring issues related to tax and repatriation can create a cash crunch

If you live and work abroad and the pandemic has wrecked your finances, one fall-back option you could consider is selling a house you may have invested in, back home. However, this is easier said than done.

Selling a house is a big-ticket transaction with tax implications. And if you are a non-resident Indian, living and filing taxes in a foreign country, then the hassles are manifold.

Tax deduction

When a property that is being sold is owned by an NRI, the buyer is required to deduct tax (TDS - tax deducted at source) at 20 per cent, plus surcharge and cess. For example, if the sale price is ₹50 lakh, ₹10 lakh will be paid as tax by the buyer on your behalf. If the property was purchased for say, ₹35 lakh, the capital gains is only ₹15 lakhs, on which tax is applicable (long-term or short-term, based on how long the property was held). The actual tax owed may be much less; file your tax return at year- end and claim the extra amount paid.

To avoid this problem, you can get a certificate from the Income-Tax Department for deducting the amount that would be closer to the actual tax rather than based on the TDS deduction. You need to apply for a certificate to withhold less, using Form 13 application. The required documents are purchase deed of the property (which gives the price), income-tax filing details for the last three years, sale agreement giving the price and an affidavit.

If you want to re-invest capital gain to save on tax, apply for Tax Exemption Certificate. For this, you need to show proof of reinvestment – this may be allotment letter or payment receipt if buying a new house or affidavit stating that you will invest in capital gains bonds under Section 54EC.

“It takes 30-45 days to get the certificate. You must give this to the buyer, so he can deduct TDS accordingly”, says Venkat Krishnamurthy, Chartered Accountant, V. Ramaratnam & Company.

Checking payment

One other complication is ensuring that the buyer indeed has made the payment that was deducted to the tax authority. The payment made against your PAN will appear on your 26AS form and you can claim this as tax paid when you file your income tax return. But there are cases where the buyer fails to pay for various reasons. For instance, the buyer needs to have a Tax Deduction Account Number (TAN) issued by the Income-Tax Department. Most individuals may not have one and one needs to budget 15 days to get it. So, it is advisable to plan for this ahead to not create a bottleneck in closing the deal. The buyer then pays the TDS and files TDS returns, within the due dates for the period.

If the payment is not made, the tax liability is still the onus of the seller, says Venkat Krishnamurthy. So, instead of finding it out late, you can require that the buyer makes the TDS payments and shares the receipts when the sale is closing, he suggested.

Also read:

Tax planning

You also need to think about tax-saving options more holistically, considering the requirements in India and the country where you file taxes. In general, you are required to pay tax on the gains in India and in your country of residence. And if the other country may consider and give credit for taxes paid in India.

For example, reinvesting the gains to buy a new property – six months before to or within two years of the transaction – can save on tax in India. But this may not be the rule in the other country; and you would be liable to pay tax, negating any benefit.

Currency repatriation

If you want to take the money from the sale to a foreign country.. Forms 15CA and 15CB must be certified by a CA and filed online, to give information such as capital gains and tax dues paid.

There are certain restrictions to consider. One, if the property was bought while you were in India, you must have held the property for 10 years before the amount can be repatriated. If not, you need to wait. In case of inherited property, there is no lock-in period.

You can show proof of inheritance and tax clearance certificates and transfer funds.

You can repatriate up to $1 million per financial year from your NRO account, plus foreign funds, if any, used for the purchase.

The author is an independent financial consultant


Also read:

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on November 29, 2020
This article is closed for comments.
Please Email the Editor