How is sale of property to NRIs taxed?

Name withheld on request

There is no difference between taxation for NRIs on sale of residential property as compared to resident Indians. NRIs who are selling house property located in India will have to pay capital gains tax.

The tax payable on the gain depends on whether it is short term or long term capital gain.

When a house property is sold, after a period of 2 years from the date of its ownership- a long-term capital gain arises. If it is held for 2 years or less then there is a short term capital gain. Tax implications for NRIs also apply in case of inheritance.

If the property is inherited, remember to consider the original owner’s date of purchase to calculate whether it is a long-term or short-term capital gain. In such a case the cost of the asset would be the cost of the previous owner.

Long term capital gains are taxed at 20% and short term gains will be taxed at income tax slab rates applicable to NRIs based on total income that is taxable in India for NRIs.

Tax Deducted at Source (TDS)

When an NRI sells a property, the buyer is liable to deduct TDS at 20%. TDS of 30% will be applicable if the property is sold before 2 years (deducted from the date of purchase).

NRIs can claim exemption under section 54, section 54EC and section 54F on long term capital gains.

Hence, an NRI can avail exemption from capital gains while filing return and claim refund of TDS deducted on capital gains.

Deduction under section 54 is available on long-term capital gains on sale of house property. Exemption is also available under section 54EC when capital gains from the first sale of the property are reinvested in specified bonds.

Archit Gupta is the Founder and CEO of Clear.in.