00:00Greetings everyone, I am Advocate Tasman Singh from NRI Legal Services and I am here to apprise you about the tax liabilities and its allied issues for buying and selling of properties in India, especially for NRIs.
00:15Nowadays, it is extremely difficult to maintain your house properties, especially when you are not around.
00:21If you are an NRI who has stayed abroad for many years and now is contemplating to sell their properties back home, then finding a buyer is an enormous task.
00:33However, the greater challenge is to be on top of all of your tax related matters.
00:39Tax and regulations are different for NRIs and resident Indians. However, investments in the Indian property market are treated at par for both Indian residents and NRIs.
00:51There are certain issues that you might need to be aware of if you want your transactions to be smoother and hassle free.
01:00These issues pertain to the nature of property, the tax liabilities, repatriating the funds, whether or not an NRI can sell their property through a power of attorney,
01:12whether or not an NRI can sell their property to a fellow NRI or a foreigner and whether or not an NRI can take loans from the bank or from financial institutions.
01:24Now, let me start with the nature of property. What kind of a property can an NRI purchase?
01:30They can be all sorts residential, commercial, but the only property type that an NRI cannot purchase is an agricultural land, a plantation property or a farmhouse.
01:40The next topic is tax liabilities. Now, the most important tax that is applicable on selling of a property in India is a capital gains tax.
01:50If you sell your property before two years of its date of purchase, short term capital gain tax is applicable.
01:57And if you sell it after two years, long term capital gain tax is applicable.
02:00If the property is inherited, the cost for the previous owner becomes the basis of the calculation of the capital gains.
02:10Now, TDS. TDS is short for tax deducted at source. It is calculated at 20.6% for long term capital gain tax and 30.9% for short term capital gain tax.
02:24Now, moreover, there is a surcharge and educational and health cess also that prevails during selling of your property.
02:36Now, for example, if your property is above 50 lakhs and under one crore, then 10% surcharge is applicable and 4% of educational and health cess.
02:45TDS is calculated on the same value of the property and not the capital gains.
02:54Let's talk about refund of TDS. If an NRI has a lower tax slab applicable to him, then he can simply file for the refund of TDS by filing his income tax return.
03:05But if you want to completely avoid the refund process, you can simply apply for a certificate for deducting the TDS at a lower rate by just filing under the jurisdictional assessment officer in the income tax department.
03:22Now, let's talk about how to save the capital gains tax.
03:27NRIs can invest their capital gains into bonds that are issued by the National Highway Authority of India or the Rural Electrification Cooperation.
03:37These are redeemable after five years. However, there is a limit of Rs 50 lakhs. Exemption on this limit can be obtained if you invest into the bonds in six months of selling a property.
03:52The other question is how can you avoid double taxes since you are NRIs?
03:58Many countries tax the income of their residents regardless of where it originates from.
04:05Some countries provide partial exemption, some total and some do not provide any.
04:10So, you need to be aware of the incumbent rules in your country of residence.
04:16For example, if you are an NRI based out of the US.
04:18You will have to declare the capital gains and losses that you had while selling your property in India as US has a double tax avoidance agreement with India.
04:33So, you will be able to deduct the taxes that you paid in India while calculating the capital gains.
04:40I will give you an example of one of our clients.
04:43He purchased a property in the year 2010-2011 and sold it in the year 2019-20 for Rs. 2 crores and he purchased it for Rs. 1 crore.
04:53In this case, the property is adjusted for inflation using the cost inflation index.
05:01This adjusted inflation cost of the property is calculated by a formula which is the cost of acquisition into the cost inflation index of the year of sale divided by the cost inflation index of the year of acquisition.
05:17Now, let's discuss about repatriating funds.
05:21There are certain guidelines for the same that NRIs and PIOs that is persons of Indian origin should be aware of if they want to repatriate the sale proceeds of after selling a property in India.
05:34There are two main conditions.
05:37Firstly, the property purchased should be under the FEMA directives.
05:42Secondly, the amount repatriated cannot exceed the original amount paid for the property if the property was acquired through foreign exchange and remitted through normal banking channels or FCNRB deposit accounts.
05:57There are also certain circumstances due to which NRIs or PIOs cannot repatriate more than $1 million per financial year.
06:08First circumstance is if the property purchased was out of Rs source of funds.
06:16Secondly, if the property was acquired by a way of gift, then the sale proceeds will have to be transferred into the NRO account and then repatriated further.
06:27Thirdly, if the property is inherited from an Indian resident, then a documentary evidence proving the inheritance has to be produced as well as an undertaking has to be given by the NRI and a certificate from an authorized chartered accountant will be required.
06:47An NRI may repatriate sale proceeds even if the property is sold to somebody outside India, but prior approval of RBI would be required.
06:59For countries like Bangladesh, Pakistan, Afghanistan, Sri Lanka, China, Iran, prior approval of the RBI is required if repatriation of the funds has to occur.
07:14Now let's talk about NRI selling their properties through power of attorneys.
07:21Power of attorneys are basically instruments through which an NRI can delegate his power or her power to a fellow friend or relative or anybody in India by which they can execute the sale on behalf of the NRI.
07:39So the power of attorneys can be special or general according to whatever rules they want to devolve upon the power of attorney holder.
07:50Now let's move on to the next question.
07:53Can an NRI avail home loan from banks or other financial institutions?
07:58Well, the RBI has given a general permission to banks and other housing finance companies which are under the National Housing Bank to provide loans to NRIs who want to buy residential property in India.
08:10These loans are sanctioned in Indian currency and have to be repaid in the same way.
08:18However, the loan amount cannot be credited directly to the bank accounts of the NRIs.
08:25They are disbursed through the sellers or the developers bank accounts.
08:29The loan can be repaid through the NRIs, NRO or NRE bank accounts.
08:34Now what are these bank accounts?
08:36The NRO, the NRE, the FCNR bank accounts.
08:40The NRE bank account is basically an account which only an NRI can open and not even their power of attorney.
08:48This bank account is opened so that the NRI can deposit their overseas earnings into India.
08:53The NRO account can be opened to deposit income earned in India.
08:59Overseas earnings cannot be deposited into the NRO account by the NRI.
09:05Next is the FCNR account.
09:07The FCNR account permits you to save money which is overseas earnings in a foreign currency in a manner of a fixed deposit.
09:16You can open an FCNR account with two or more NRIs like basically like a joint account.
09:24Now the next question is whether or not an NRI can sell properties to a fellow NRI or another foreigner.
09:32An NRI if already owns an agricultural or a plantation property or a farmhouse in India cannot sell their property to another NRI.
09:42However, residential or commercial properties can be sold to other NRIs or foreign citizens.
09:50I hope you found this video informative.
09:53In case you have any queries regarding tax liabilities for buying and selling of properties in India,
09:58please leave a comment in the comment section.
10:01Also you can write to us at query at the rate NRIlegalservices.com.
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