The sale of immovable property (such as land, house, or flat) by a Non-Resident Indian (NRI) in India involves specific legal and tax implications under Indian laws, including those governed by the Income Tax Act, FEMA (Foreign Exchange Management Act), and the RBI (Reserve Bank of India) regulations. Below are the key points that NRIs need to understand regarding the sale of immovable property in India:

1. Eligibility to Sell Property in India

An NRI is allowed to sell immovable property in India. However, NRIs must ensure the following:

• Property Type: NRIs can sell both residential and commercial property in India. The property can be freehold, leasehold, or land.
• Property Ownership: The NRI should be the legal owner of the property. They can sell property that they own outright, and the property must be acquired according to the applicable laws (e.g., through inheritance, purchase, or transfer from a relative).

2. Tax Implications of Sale of Immovable Property

a. Capital Gains Tax

When an NRI sells immovable property in India, capital gains tax is applicable, which is determined based on the holding period and the type of property (long-term or short-term).

1. Short-Term Capital Gains (STCG)
   • Applicable for property sold within 2 years of acquisition.
   • Tax Rate: 30% on the capital gains (plus applicable surcharge and cess).
   • Indexation benefit: Not available for short-term capital gains.
2. Long-Term Capital Gains (LTCG)
   • Applicable for property sold after 2 years of acquisition.
   • Tax Rate: 20% (with the benefit of indexation).
   • Indexation: This allows the adjustment of the cost of acquisition and cost of improvement of the property to account for inflation, thus reducing the capital gain and, consequently, the tax liability.

b. Tax Deduction at Source (TDS)

• The buyer is required to deduct tax at source (TDS) while purchasing immovable property from an NRI.
• TDS Rate:
  • Long-Term Capital Gains: 20% (plus surcharge and cess).
  • Short-Term Capital Gains: 30% (plus surcharge and cess).
• The buyer is responsible for depositing the TDS with the Income Tax Department and issuing a TDS certificate (Form 16A) to the seller.
• If the NRI seller does not have a PAN (Permanent Account Number), the buyer must deduct TDS at 20% (for long-term capital gains) or 30% (for short-term capital gains), irrespective of the actual capital gains.

c. Repatriation of Sale Proceeds

• Repatriation of Sale Proceeds: NRIs can repatriate the sale proceeds (after paying taxes) to their foreign country of residence.
  • The amount that can be repatriated is limited to USD 1 million per financial year under the FEMA (Foreign Exchange Management Act) guidelines.
  • Repatriation can only be done if the sale proceeds are deposited into an NRO (Non-Resident Ordinary) account, which is linked to an NRE (Non-Resident External) account.
• For Residential Property: There is no restriction on the number of properties that can be sold, and the repatriation is subject to the above limit.

3. Process of Sale of Immovable Property by NRI

a. Documentation Required

1. Title Deed and Proof of Ownership: The NRI must provide documents to establish that they own the property, such as the sale deed, agreement to sell, and property tax receipts.
2. Identity Proof: NRIs must provide a valid passport and, in certain cases, PAN.
3. Tax Clearance Certificate: If the NRI has any pending taxes, they may need to provide proof of clearance before selling the property.

b. Transfer of Property

1. Sale Agreement: A Sale Agreement must be executed between the buyer and seller, detailing the terms of the sale.
2. Payment: The buyer makes the payment for the property, deducting TDS as applicable.
3. Registration of Sale: The sale must be registered with the Registrar of Properties in India, and a sale deed is executed.
4. Transfer of Possession: After registration, the possession of the property is transferred to the buyer.

c. Power of Attorney (POA)

If the NRI is unable to be present in India for the sale, they can grant a Power of Attorney (POA) to a representative in India (such as a relative or lawyer). The POA should be duly notarized in the NRI’s country of residence and registered in India for it to be legally valid.

4. Reinvestment and Exemptions under Capital Gains

Under Section 54 and Section 54F of the Income Tax Act, NRIs can claim exemptions from capital gains tax if they reinvest the proceeds of the sale of immovable property into another property or specific financial instruments.

1. Section 54: If the NRI sells residential property and reinvests the proceeds in another residential property (within India), the long-term capital gains may be exempt.
2. Section 54F: If the NRI sells any capital asset (including immovable property) and reinvests the proceeds in the purchase of a residential property in India, the exemption may apply.

Conditions for Exemption under Sections 54 and 54F:

• The new property must be purchased within 1 year before or 2 years after the sale of the original property or constructed within 3 years.
• The NRI must not own more than one residential property other than the new property after the sale.

5. Reporting and Filing Tax Returns

• Filing Income Tax Returns: NRIs must file their Income Tax Return (ITR) in India to report their capital gains from the sale of immovable property.
  • The capital gains will be reported in ITR-2 or ITR-3 form (depending on whether the NRI has business income).
  • The TDS deducted by the buyer will be shown in the NRI’s ITR, and the excess TDS, if any, can be claimed as a refund.
• Capital Gains Account: In cases where the NRI intends to claim exemptions under Sections 54 or 54F, the amount must be deposited in a Capital Gains Account Scheme before filing the ITR.

6. Special Considerations for NRIs

• Double Taxation Avoidance Agreement (DTAA): NRIs should check if their home country has a Double Taxation Avoidance Agreement (DTAA) with India. The DTAA may provide relief from double taxation of capital gains, particularly in cases where the NRI is subject to tax in both countries.
• Currency Repatriation: The proceeds from the sale can be repatriated to the NRI’s country of residence, subject to the FEMA guidelines and the USD 1 million per financial year limit.

Conclusion

The sale of immovable property by an NRI in India involves understanding both the tax and regulatory aspects under Indian law:

1. Capital gains tax depends on the holding period (short-term or long-term) and whether indexation benefits can be applied.
2. The buyer will deduct TDS on the sale amount.
3. The NRI must ensure that the sale process adheres to the legal requirements and tax filings in India.
4. Repatriation of sale proceeds is subject to FEMA regulations, and NRIs can transfer the proceeds to their country of residence under specific conditions.

For specific advice regarding taxation or the process, it’s recommended to consult a tax advisor or legal expert specializing in NRI-related matters.

Let me know if you need further information on any specific aspect!