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NRI Taxation Tips For 2020 In Relation to Sale of Property In India

CA Arun Tiwari 
on 06 January 2020


When an NRI sells its property Situated in India then his major concern is taxation. It is seen that when a person starts living outside India then subject to the provisions of the Income-tax act, 1961, he becomes the resident of such a foreign country and liable to pay his taxes in such a country. Then, he shall be called Non-Resident in India. A Non- Resident shall be required to pay taxes in India in respect of income which is received in India and accrues or arise in India.

It becomes very difficult for a Non-Resident to manage his property situated in India. Hence, for this, he has only 2 option i.e. either given such property to any family member or sold its property to any Indian Resident person. However, in case, where he sold the property then he shall also liable to pay the taxes in India because in this case, the income is being received in India. So what are the options available to Non-resident to save from the taxes on the sale of property in India? In this article, we will discuss, how can an NRI save the taxes on the sale of immovable property in India.

TDS under section 195

Where a Non-resident sold his immovable property to any Indian resident then such resident buyer shall be required to deduct the TDS under section 195 @ 30% on the sale value of the property. It is to be noted that the TDS is to be deducted on the consideration value and not on the gain arise to such Non-resident. Hence, even if the Non-resident sold the property on loss then also his TDS shall be deducted. Although he can claim such TDS as a refund by filing his return of Income it takes time and it blocks the capital of the Non-resident. If you also have the same issue then do not worry, we have good news for you. The buyer will not deduct the TDS if you produce the certificate under section 197. So, what is section 197? Let’s understand it in detail.

Note: Do not confuse the TDS deducted on sale property under section 194IA. Under section 194IA, TDS is required to be deducted @ 1% on the gross value of the consideration where such gross value exceeds Rs.50 Lakhs. However, the said section shall be applicable only when the seller of the property is being Indian resident However, here the seller is a Non-resident hence section 195 shall be applicable.

Section 197: certificate for lower deduction or lower deduction of TDS

If the Non-resident is of the opinion that he would not have any tax liability or his tax liability shall be lower than the TDS deducted on the sale consideration then he can obtain the certificate of lower or Nil rated TDS certificate. To obtain such a certificate, he shall have to file an application to income tax assessing officer in form 13 along with computation of Income. Where the assessing officer is being satisfied that all the compliance has been made then he shall issue a certificate under section 197. After obtaining the certificate, he shall give one copy to the buyer of the property then he shall not deduct the TDS on the consideration value of the property.

This option can be exercised by the Non-resident when he produces evidence to the income tax authority that his total tax liability shall go to be nil or less than the number of TDS which is to be deducted on sale. 

However, if he also has some other income and tax liability then whether there is any other option for such Non-resident to save the taxes, The answer is Yes if he exercises the option given in scheme given under section 54 or 54EC.

Note: The certificate under section 197 can be obtained by any person from any nature of Income. That means the said certificate can be taken even by the resident if his total tax liability is nil or less than the amount to be deducted under TDS.

Section 54 of Income Tax Act, 1961: Capital gain on sale of Residential house

Assessee: Person should be individual or HUF

Conditions: There should be the transfer (Sale) of residential house property which should be held for more than 2 years i.e. such residential property should be the long term capital asset.

New Asset: Non- resident individuals can avail of the exemption by purchasing only one residential house property. Although, if 2 adjacent houses converted into a single house then it shall also be eligible for exemption.

Amount of Exemption:

NRI shall be eligible for the exemption of lower of 

  • A capital gain arises from the sale of an asset or
  • Cost of new Asset

The time period for acquiring new assets


 

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  • It should be purchased within 1 year before the transfer or 2 years after the transfer or
  • It should be constructed within 3 years from the date of transfer.

Restriction on transfer of new assets

New assets acquired shall not be transferred within 3 years from the date of purchase or the date of construction as the case may be.

A consequence of the violence of the above conditions

If the NRI violates any condition of section 54 after claiming the exemption then as and when the new asset would be sold then the cost of acquisition of new asset transferred shall be reduced by the capital gain exempted earlier for the purpose of computation of capital gain of new assets.

Section 54EC of Income Tax Act, 1961: Investment in Certain Bonds

Assessee: Person may be the any assesse

Conditions: There is a sale of any long term capital asset being land and building or both.

New Asset: The gain from the transfer shall be exempted when such amount has been invested within 6 months of such transfer, in any of the following bonds:

  • National Highway Authority of India or
  • Rural Electrification Corp. Ltd. or
  • Power finance corporation limited or
  • Indian railway finance corporation limited

Note: The exemption shall be valid only if these bonds would be redeemable after 5 years from the date of issue.

Note: The maximum amount of exemption Rs.50 Lakhs.

In the above, we have discussed the provisions which help the Non-resident to save the capital gain from the sale of the property. Now we will understand in which account he can deposit a considerable amount of consideration.

An NRI has been given an option to open 2 types of accounts which are

  • Non-Resident External Account (NRE Account)
  • Non-Resident Ordinary Account (NRO Account)

Non-Resident External Account (NRE Account):

NRE is an account maintained in rupees in which a Non-resident invest its foreign income earned outside India. NRE Account is held in India and maintained in rupees.

Non-Resident Ordinary Account (NRO Account):

NRO Account is the account opened by the NRI in which he can maintain and manage its income earned in India like any rental income or dividend income etc.

Whenever the residential status of any person is changed, the normal bank account can also be redesignated into NRO Account.

Hence, if the NRI earned the income from the sale of the property, then he shall have to deposit the money in his Non-resident Ordinary Account, If you want to read more about NRE and NRO account then you can refer our previous articles in which we have discussed in detail about this.

This account can be open jointly with Indian residents also. That means, Family member of NRI, who is an Indian resident can also be open to the NRO Account with him.


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