Real estate is one of the best classes to invest in and reap results. Non-Resident Indians (NRIs) and Overseas Citizens of India (OCI), in addition to investing in other asset classes, also have a significant amount of exposure in the Indian real estate market. These properties are mostly held for investment purposes, and when the market timing is right, or there is a need to raise funds, or an NRI simply wants to liquidate his Indian assets, he may want to sell this investment. This can be challenging for a person who doesn’t stay here. From understanding the legal aspects to maximising your investment returns, this guide covers it all for a smooth successful sale of your property.
What are the types of properties that an NRI can sell?
An NRI can sell any immovable property such as residential or commercial in India to a resident of India or another NRI/PIO/OCI. These properties may include
- an NRI selling property that was bought as a resident Indian or an NRI
- an NRI selling property that was inherited as a resident Indian or an NRI
What are the documents required for NRIs to sell property in India?
#1 Property documents
Ensure that you have all the original documents related to the property that is up for sale with you. These include:
- Sale deed: This is proof of ownership of the property that would have been executed when the NRI would have bought the property.
- Encumbrance certificate: This document mentions that there is no legal
- Allotment letter: This is another document that supports proof of ownership and would have been granted by a developer to the NRI when he would have bought the property. This is granted by a developer in case of new project investment or a housing society in case of purchase of a resale property.
- Property blueprint plan: This will mention the approved construction plan of the property with the exact measurements.
- Occupation certificate: This is necessary that mentions that the property is fit for staying.
- Documents from the housing society: In case of a resale property, the NRI should have a permission letter from the society to sell the property. This is only given when all payments to the society such as maintenance charges, utility bills etc. are completely paid. The society will also handover the share certificate, if a conveyance deed has been executed that states that the society is the owner of the land and the property on it.
- Encumbrance Certificate: An encumbrance certificate is a legal document that states that the property is free from financial and legal liability.
- Property tax receipt: All property owners have to pay an annual property tax to the local body. If the property tax is pending to be paid, then there will be a problem with proceeding with sale of the property.
- Income tax returns: The NRI also has to keep ready all his income tax returns if he has been renting out the property (earning income) that he intends to sell now (for that time period).
#2 Passport
This acts as proof of identity for the sale of the property. Note that this need not necessarily be an Indian passport.
#3 PAN card
While NRIs may necessarily not pay tax in India, having a PAN card is necessary for the tax exemption certificate, once the property is sold.
#4 Address proof
An NRI has to give proof of address in India as well as his residence abroad. This may be electricity bills, bank statements, life insurance policy etc.
#5 Power of attorney
If an NRI cannot be physically present in India for the sale of his property, he may exercise the power of attorney (POA) allowing his relative or friend to complete the sale on his behalf by signing the official documents. In the POA, you as an owner can mention the specific rights that you want to give to the person exercising the deal on your behalf.
How can an NRI identify property value and time the market?
- Once decided to sell the property, prepare it so that it generates interest among buyers. Do all the repair work needed and it’s advisable to apply a fresh coat of paint to the house to make it look new and attractive.
- Do a thorough market research on the prevailing property rates in that area. It is a good idea to know about the circle rate, the guidance value or the ready reckoner rate (as it would be called in that part of the country) to match with the prices that are being offered to you.
- Also, it is recommended to keep a constant tab on the news to know if the state government is looking at increasing or reducing the stamp duty and registration charges. You may use the services of a real estate agent or property portals such as Housing.com where you can list your property for sale online and benefit from the end to end assistance provided in this home selling journey of yours.
What are the legal points to cover by an NRI?
Since, an NRI may not be familiar with the market, it’s a good idea to engage a lawyer alongside who will check all the buyer documents to see if there is any red flag. You do not want to be in a situation where you will be cheated of your property without getting the entire money.
Who can NRIs sell their property in India to?
Under the Foreign Exchange Management Act, 1999, (FEMA) regulations, an NRI/ OCI can sell their property to only Indian citizens.
- Commercial or residential property to a person residing in India or an NRI/ OCI.
- Agricultural land and farmhouses to only a person residing in India and not an NRI/ OCI.
Repatriation of sale proceeds by NRI
Repatriation of funds will depend on
- If the property was purchased, gifted or inherited
- The source of money for buying the property
- Residential status of the person when the property was being bought and sold
Three cases in which an NRI can repatriate sales
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NRI selling property that was bought when he was an resident Indian (RI)
In this case, you may repatriate sales money of total USD 1 million in a financial year. In case you want to repatriate more, you would need approval from RBI.
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NRI selling property that he bought as NRI
In this case, if the property was bought using funds form an NRE account, you can repatriate the entire sale proceeds.
If the property was bought using funds form an NRO account, you can repatriate USD 1 million in a financial year.
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Property that was received as gift/inherited
If the property was given as a gift, you can repatriate USD 1 million in a financial year.
According to the RBI, repatriation of the sale proceeds outside India may be allowed if
(i) The immovable property was acquired by the seller in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations;
(ii) The amount to be repatriated does not exceed the amount paid for acquisition of the immovable property in foreign exchange received through normal banking channels, or the amount paid out of funds held in Foreign Currency Non-Resident Account, or the foreign currency equivalent (as on the date of payment) of the amount paid where such payment was made from the funds held in Non-Resident External account for acquisition of the property
Note that in the case of residential property, the repatriation of sale proceeds is restricted to a maximum of two such properties. Repatriation is not permitted on sale of agricultural land and farm houses in India. Also, in some cases, an NRI may need to take approval from the Reserve Bank of India for repatriation of the money received through sale of the immovable property.
What are the tax implications that an NRI selling property should know?
Long term capital gains tax (LTCG)
When a property is sold, the capital gains tax comes into play. A property that is held for more than 24 months will attract the long term capital gains (LTCG). In India, as announced in the Union Budget 2024-25, all properties registered before July 23, 2024 can calculate the LTCG gains with 20% indexation or 12.5% indexation. However, all properties registered after this period will have to calculate the LTCG with 12.5% indexation. Note that while calculating the tax, if the property has been inherited from someone or gifted by somebody, the ownership period of the previous owner will also be considered.
A property that has been held for a short duration of time will attract short term capital gains (STCG).
Tax deducted at source (TDS)
TDS on sale of property depends on
- Whether property has made Long Term Capital Gain (LTCG) or Short-Term Capital Gain (STCG)
- If the holding period is less than 24 months, then TDS on capital gains is 30% plus applicable surcharge and education cess.
- If the holding period is more than 24 months, then TDS on capital gains is 20% plus applicable surcharge and education cess.
- Whether you have opted for the old or new tax regime
- The applicable IT slab
- Is a Lower Tax Deduction Certificate (LDC) available
You can lower the TDS liability by registering with the TRACES portal and apply for an LDC online by filling Form 13 with supporting documents to the Income Tax Assessing Officer (AO) in India.
You can show documents including
- LTCG/STCG in the property transacation
- Approximate total income to be earned in India for the current year
If the AO approves this, he will issue the NRI a LDC that will be valid for a specific period. The NRI has to ensure that the deal is completed before the certificate expires. Note that if this LDC certificate is not obtained by either buyer or seller, TDS on sale of property will be calculated by the buyer by considering sale as capital gains and with the maximum rate of the TDS.
Housing.com POV
Selling a property in India can be a tedious task for NRIs if they do not understand the legalities attached. With careful market research and understanding, planning of the sale and execution that this guide has detailed on, one can close the deal successfully here.
FAQs
Can an NRI sell his property without being physically present in India?
Yes, an NRI can sell his property without being physically present in India by invoking the power of attorney, allowing another person to execute the deal on his behalf.
Are there any legal restrictions for NRIs selling property in India?
Yes. An NRI can sell residential and commercial property to Indian residents or NRIs. However, he cannot sell agricultural land or farmhouses to NRIs.
Is it necessary to register the sale agreement after the sale of the immovable property?
Yes, registering the property with the local SRO ensures that it is mentioned in the legal records.
How much of the sale proceeds can an NRI repatriate to his country?
NRIs can repatriate the sale proceeds up to USD 1 million in one financial year.
Can a property be sold if an NRI has an outstanding loan on it?
No. The NRI has to clear the outstanding loan, get a NOC from the bank, and then only proceed with the sale.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |