Implications Of Sale Of NRI's Property in India and Money Transfer To The UK

India is one of the most popular destinations for money transferred from family members or people living abroad. However, as a beneficiary in India, you should be aware of the tax implications. Simply said, it depends on who is providing the money and why.

NRIs may choose to sell the property since it is difficult to maintain if they do not intend to visit India. On the other hand, they may decide to rent it out and place the responsibility of property taxes, maintenance fees, and other municipal dues on their family members. Because of the implications, this procedure may get tiring.

There are always implications of Tax for NRI due uncertainty about the tax laws who desire to sell property they may own in India. NRIs who sell residential property in India must pay Capital Gains Tax. The tax payable is calculated on the amount of gains determined by whether they are short-term owned or long-term possessed. However, you may invest money in a particular way to minimize your ultimate net tax liability. You can make use of sale proceeds to repatriate the earnings to overseas, but only to a limited extent.

This blog will explain the tax levied and the TDS deducted when NRIs sell property in India.

Tax Implications

Inheritance has a significant impact on the tax implications for NRIs. If the property was inherited, always remember to account for the original owner's date of buying to assess whether it is a long-term capital gain (LTCG) or short-term capital gain (STCG). In that situation, the property's cost must equal the cost to the prior owner. However, if purchase is before 1st April 2001, The cost of acquisition shall be allowed to be taken as FMV as on that date or the actual cost as favorable to the taxpayer.

To put it in perspective, your tax burden due to sale of property is determined by the number of years or duration you have owned it. For example, if you sell a home owned by you for more than two years, you will be subject to a tax for long-term capital gains. Conversely, short-term capital gains tax is being paid on properties in case owned duration for less than two years.

The Capital Gains Tax Rates are as follows:

• Long-term capital gains get tax @ 20%. after indexation* benefit.
  (*Indexation is basically inflation factor given by Income tax department for several years, like cost of INR 100,000/- in FY2001-02, will be treated as cost of INR 301,000/- in FY 2020-21 for computing capital gain)

• Short-term gains get subjected to tax at the variable income tax slab rates specified for the NRI, depending on the gross total income taxable for the person who is NRI (Non-resident of India).

Capital gain is the net difference (delta) between the original cost and the sale price, minus any expenditure incurred (if any) during the sale such as: stamp duty, brokerage, solicitor fees, court fee, registration charges, etc.

TDS (Tax deducted at source) liability

When a NRI sells his/her property, then the buyer is obligated to deduct a TDS amount at a rate of 20%. If in case a sale of the property happens within a span of two years from the date of acquisition, a TDS rate of 30% shall be levied. If the TDS exceeds from tax liability, you can seek a tax refund amount at the end of the tax year for the excess TDS.

If you would like to skip this time-consuming procedure, you may apply for a copy of certificate that permits you to submit for a lower rate of TDS. While applying for Lower TDS certificate with Income tax authorities, the seller needs to declare his costs and proposed exemptions applicable to him as detailed further in next paras, u/s 54EC or 54F etc to determine his correct Tax liability to avoid excess TDS deduction. .

Remember you must apply before you sign the selling agreement. The assessing officer will calculate the TDS once the capital gains have been estimated. Instead of waiting for a refund, this will put the money in your hands right away.

Moreover, buyers need to apply for TAN number as well to deduct such TDS and file applicable TDS return as well as to issue TDS Certificate for the same.

Gotaxfile's experts may assist you with filing relevant forms for lower tax deduction and arranging TAN / TDS compliances smoothly for buyer and seller.

Tax exemption available under Section 54EC

Capital gains earned are of huge significance if used correctly. Investment in the long-term capital gains assets from certain bonds can help you save tax. Bonds issued by the NHAI (National Highway Authority of India) or the REC (Rural Electrification Corporation) have been designated for this exemption purpose. These can be redeemable after 5 years (earlier three years) and must not be sold before 5 years (previously three years) from the transaction date when house property was sold. These bonds have an annual interest rate of 5.75 percent.

The amount of capital gains calculated from the sale of a property can be reinvested in India. It helps in reducing the tax liability.

The profit earned from the sale will be completely tax-free if you use the capital gains to acquire another property within two years.

Tax exemption available under Section 54F

The exemption available under Section 54F is available if the transaction is a long-term capital gain from the sale proceeds of capital assets other than a residential property. The NRI must do the following action to claim this exemption.

• Buy at least one home real estate * within one year before or two years after the transfer date or
• Build one home within 3 (three) years after the capital asset transfer

Another relevant condition is that the new home must be located in India and must not be sold within three years of being bought or built.

Furthermore, the NRI shouldn’t hold more than 1 (one) home property apart from the newly purchased / built house, nor should buy or build any different residential property for the next two years.

It is best to invest the total amount of sale receipt to avail of this exemption. If the total amount of sale proceeds are invested, then capital gains on the sale are exempt; otherwise, the amount of exemption is given proportionally.

FEMA provisions on the money transfer to the UK and the relevant UK regulations on repatriation of money from India

According to India's Foreign Exchange Management Act (FEMA), if you receive money received from a family member overseas as a gift amount or for maintenance of family assistance, the money is tax-free in India.

The following consists of a family under the provision of FEMA.

• Your husband
• Your Sister or Brother
• Sister or Brother of your husband
• Sister or Brother of your father or mother
• Any lineal ancestors or descendant you have
• Your partner's ancestors or descendant
• Any partners of the previous two.

If a sum of money is transferred to anyone who is not on this above list, they should be considered as non-relatives. As a result, if the sum of the amount received exceeds US $50,000 in a year, it will be subject to taxation.

Secondly, in addition to a gift from a relative, money received in India for the following reasons is also not taxed:

• Getting married
• Received an inheritance
• Received from any such fund, university, an educational, or medical institution as per the guidelines of the Reserve Bank of India.

Under the guidelines of FEMA, you will have to pay 5% tax on an amount above Rs. 7 lakhs if sent from India to the UK. However, concessions are available for payments made as loans for educational reasons.

You must ensure that the purpose of your transfer satisfies FEMA's standards for sending money outside India. And your yearly limit will be the British Pound equivalent of USD 250,000 at the time of submission.

Repatriation of funds:

15CA and 15CB-

These are the forms to be submitted if you are planning to repatriate the proceeds from the sale of a property. You can fill out and submit the 15 CA form on your own. Form 15CB needs the expertise of a CA, and Gotaxfile's experts may assist you with it. You can repatriate up to US $ 1 million a year outside India.

NRIs can find robust backing in their tax troubles with Gotaxfile!

Tax compliances have never been simpler than with Gotaxfile. Find experts for your capital gain tax worries and international money transfer needs. We have elaborate experience in dealing with tax and accounting matters in India.

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