Selling property in India as a Non-Resident Indian (NRI) can be both rewarding and challenging due to the unique legal and tax regulations that govern such transactions. Understanding the nuances and preparing for the process can significantly reduce potential hurdles.

This blog will guide you through the critical aspects to consider when Selling NRI property in India .

1. Legal Aspects of Selling Property as an NRI

The Foreign Exchange Management Act (FEMA) governs property sales for NRIs in India, stipulating who can buy NRI-owned properties and the types of properties that can be sold. The regulations are as follows:

• Eligible Buyers: NRIs can sell their residential or commercial property to Indian residents, other NRIs, or Persons of Indian Origin (PIOs). However, if selling agricultural land, plantation property, or farmhouses, the buyer must be a resident of India.
• Types of Property: There are no restrictions on selling residential and commercial properties. Agricultural land or farmhouse properties can only be sold to resident Indians, as FEMA regulations prohibit NRIs from transferring these types of assets to other NRIs or PIOs.

2. Preparing the Necessary Documents

Having all required documents in order is crucial for a smooth and legally compliant sale process. The key documents NRIs need to have include:

• Property Title Deed: This document proves ownership of the property and is essential for transferring ownership.
• PAN Card: A Permanent Account Number is mandatory for NRIs when conducting property transactions in India, primarily for tax-related purposes.
• Passport and OCI/PIO Card (if applicable): These documents serve as proof of NRI status.
• Encumbrance Certificate: This certificate confirms that the property is free of any legal dues or loans.
• Sale Agreement and Sale Deed (Previous Owner): These documents show that the current owner has the right to sell the property and provide details of any prior transactions.

3. Tax Implications for NRIs

Understanding the tax implications when selling a property is crucial to managing costs and complying with Indian tax laws. Here are the main tax considerations for NRIs:

• Capital Gains Tax: The sale of property is subject to either short-term or long-term capital gains tax:
  • Short-Term Capital Gains (STCG): If the property is sold within two years of purchase, the gains are considered short-term and taxed at the NRI’s applicable income tax rate.
  • Long-Term Capital Gains (LTCG): When the property is sold after two years, the gains qualify as long-term and are taxed at a 20% rate with indexation benefits.
• Tax Deducted at Source (TDS): A TDS of 20% on LTCG or 30% on STCG is applicable when an NRI sells a property. The buyer is responsible for deducting this TDS before making the payment to the NRI seller.
• Tax Exemptions: NRIs can reduce their capital gains tax liability by reinvesting in specific avenues:
  • Section 54: Investing in another residential property in India can help save on capital gains tax.
  • Section 54EC: NRIs can invest in specified bonds like National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC) to claim tax exemption.

4. Power of Attorney (PoA)

A Power of Attorney is a useful tool for NRIs who cannot be physically present in India to execute the property sale. With a PoA, an NRI can authorize a trusted person to handle legal formalities, documentation, and property registration on their behalf. The PoA should be notarized and attested by the Indian Consulate in the country where the NRI resides for legal validation in India.

5. Repatriating Sale Proceeds

Repatriation of funds refers to the transfer of money earned from the sale back to the NRI’s country of residence. Here are the rules concerning repatriation:

• Limit on Repatriation: An NRI can repatriate up to USD 1 million per financial year. This limit applies to the sale proceeds, including assets acquired through inheritance or gifted properties.
• Conditions for Repatriation: For properties purchased using funds from an NRE/FCNR account or acquired while residing in India, repatriation is allowed, provided the transaction complies with FEMA rules.
• Repatriation Documents: Required documents include Form 15CA/15CB, which must be certified by a Chartered Accountant, and proof of the source of funds used for the property’s purchase.

6. Compliance with Legal and Regulatory Procedures

Ensuring compliance with all legal and regulatory requirements is vital to completing a property sale in India:

• Sale Deed Registration: The sale deed must be registered with the local sub-registrar’s office to complete the property transfer. Both the buyer and seller (or their representatives) need to be present for this process.
• Settlement of Outstanding Dues: Before the sale, the NRI should settle any outstanding property taxes, utility bills, or maintenance charges. This will avoid future complications and ensure a smooth transfer to the new owner.
• Encumbrance Clearance: Ensuring that the property is free of encumbrances, such as unpaid mortgages or legal disputes, is necessary to avoid delays.

7. Challenges NRIs May Face When Selling Property

There are several challenges NRIs may encounter during the sale process:

• Legal Complications: Unclear property titles or disputes can significantly delay the sale. Resolving such issues before listing the property is advisable.
• Regulatory Delays: The process of document verification, registration, and regulatory compliance can take time, especially if the NRI is not present in India.
• Tax Filing Requirements: It is essential to accurately calculate capital gains and fulfill TDS obligations to avoid tax penalties.

8. Tips for a Smooth Property Sale

To ensure a smooth and hassle-free sale process, NRIs should consider the following tips:

• Hire a Real Estate Consultant: Working with an experienced real estate consultant who specializes in NRI property sales can help simplify the process. They can handle the paperwork, legal formalities, and even assist in finding a potential buyer.
• Engage a Tax Consultant: A tax consultant can help calculate capital gains, advise on TDS deductions, and provide guidance on tax exemptions.
• Keep Documentation Updated: Regularly update property-related documents, such as ownership records, to avoid delays during the sale process.
• Verify the Buyer’s Credentials: Conduct thorough checks on the buyer to ensure that the transaction is legitimate and that they have a genuine interest in purchasing the property.

9. Practical Example of Capital Gains Calculation for NRIs

To illustrate, consider a case where an NRI purchased a residential property for INR 30 lakhs in 2012 and sold it for INR 1 crore in 2024. Here’s how the long-term capital gains would be calculated:

1. Indexed Cost of Acquisition: Applying the indexation benefits, the indexed purchase price might be around INR 50 lakhs.
2. Capital Gains: The capital gain would be INR 50 lakhs (1 crore – 50 lakhs).
3. Capital Gains Tax: At 20% with indexation benefits, the tax on the capital gains would be INR 10 lakhs.

The NRI can reduce this tax liability by investing in specified bonds under Section 54EC or reinvesting in another residential property in India.

10. Conclusion

Selling NRI property in India requires a clear understanding of legal guidelines, tax implications, and regulatory procedures. Preparing the necessary documents, understanding the repatriation process, and seeking professional advice can help streamline the transaction. Being proactive in addressing potential challenges, such as title disputes or tax calculations, will ensure a smooth sale.