I am planning to sell my property in India

What are the tax aspects an NRI Property Seller needs to keep in mind?

An NRI selling their property in India needs to keep the following things in mind:

1. Tax is payable in India when you sell your property in India.
2. Taxation depends on whether the property is long-term (held for more than 2 years) or short term (held for less than 2 years).
3. The sale transaction will be subject to upfront tax known as TDS (Tax Deducted at Source), which the buyer will deduct before paying you the sale value.
4. It is imperative to file an Income Tax Return in India in the year of sale to avoid notices from the Tax Department in the future.
5. In case property is being sold at a gain for tax purposes, there are various tax saver investment options for reducing the tax payable on your transaction. Please refer to our article Saving tax on sale of your residential house property for understanding the various tax saver investment options available to NRIs.

What are the TDS Rates Applicable to NRI Seller?

The above TDS rates are to be increased by surcharge and cess.

On what amount is the TDS Rate Applied?

TDS will be deducted by the Buyer on the entire sale value and not just on the profit earned on the transaction or “capital gain” as it is called in tax.

Excess TDS deducted can be claimed as refund when filing Income Tax Return in India or NRI Seller has the option to apply for a Lower Deduction Certificate or LDC for reducing the TDS rate on the property sale transaction.

How do we compute the profit or “capital gain” on the property sale transaction by an NRI Seller?

For Property Transfers before 23 July 2024

The “indexed cost” will need to be reduced from the sale value to determine the amount of capital gain.

Indexation is a factor which the Government allows you to apply on your cost of acquisition which increases the cost of your purchase in light of the increasing inflation.

For Property Transfers on or after 23 July 2024

The original purchase cost will need to be reduced from the sale value to determine the amount of capital gain.

What is a Lower Deduction Certificate (LDC)?

A Lower Deduction Certificate or LDC is a certificate issued by the Income Tax Department on behalf of the NRI Seller which allows the Buyer to deduct TDS at a rate lower than 12.5% / 20% / 30% TDS applicable on the transaction. The application for LDC is required to be made by the NRI Seller.

What are the documents required to apply for an LDC?

All documents in support of the property sale transaction will need to be furnished with the Income Tax Department such as:

1. Copy of deed for purchasing the property;
2. Copy of agreement for the proposed sale;
3. The details of TAN allotted to the property buyer;
4. Copy of fair value certificate for the property;
5. Workings for capital gain applicable on the transaction etc.