Sale of Property by NRI: Tax Implications, Repatriation Rules & Legal Guidelines

Many Non-Resident Indians (NRIs) sell property in India for various reasons, including capitalising on investment returns, relocating abroad permanently, or liquidating inherited assets. While the process can be rewarding, navigating legal, financial, and regulatory aspects can be complex. Challenges include adhering to Foreign Exchange Management Act (FEMA) regulations, paying applicable taxes, and repatriating funds. With proper guidance and solutions like the IDFC FIRST Bank NRI Account, NRIs can manage the process efficiently and in compliance with Indian laws.

Eligibility & types of property NRIs can sell
 

NRIs are permitted to own and sell the following types of properties in India:

• Residential properties (apartments, houses, villas)
• Commercial properties (offices, shops, warehouses)

FEMA & RBI Guidelines for selling property in India
 

According to FEMA and RBI regulations:

• NRIs and Overseas Citizens of India (OCIs) can sell residential or commercial properties to:
  
  
  • Person resident in India
  • Other NRIs or OCIs
     
• The sale transaction must occur through recognised banking channels in India, ensuring transparency and compliance.

Restrictions on agricultural land, plantation property, and farmhouses
 

• NRIs cannot sell agricultural land, plantation property, or farmhouses to another NRI or OCI.
• These properties can only be sold to person resident in India

Step-by-step process for selling property as an NRI
 

Step 1: Verify property documents
 

Ensure all property documents are in order, including the title deed, prior sale agreements, and no encumbrance certificates. Valid documentation prevents legal disputes and expedites the sale process.

Step 2: Get a property valuation
 

Engage a registered valuer to determine the market value of your property. An accurate valuation helps in setting a fair selling price and complying with taxation norms.

Step 3: Appoint a Power of Attorney (PoA) if abroad
 

If you cannot be physically present in India, appointing a PoA allows a trusted individual to manage sale-related formalities on your behalf. The PoA document should be notarised and attested at the Indian consulate in your resident country.

Step 4: Find a buyer & negotiate the deal
 

Identify genuine buyers and negotiate the terms of sale. Be transparent about the property’s condition, legal status, and expected price.

Step 5: Draft & sign the sale agreement
 

Prepare a sale agreement mentioning the final price, payment schedule, and responsibilities of both parties. Both buyer and seller must sign it on a non-judicial stamp paper.

Step 6: Pay applicable taxes & TDS deductions
 

• The buyer is required to deduct Tax Deducted at Source (TDS) before making payment:
  
  
  • 30% TDS for properties held for less than 24 months (short-term capital gains)
  • 12.5% TDS for properties held longer than 24 months (long-term capital gains)
     
• TDS certificates should be obtained for tax filing and claiming refunds.

Step 7: Register the sale deed & handover possession
 

Register the sale deed at the local sub-registrar office. Ensure stamp duty and registration charges are duly paid. Once registered, hand over the property’s physical possession to the buyer.

Step 8: Repatriate funds to your foreign bank account
 

After the sale, NRIs can repatriate proceeds up to USD 1 million per financial year through their IDFC FIRST Bank NRI Account. Conditions for repatriation include:

• The property was legally acquired  in accordance with the provisions of the foreign exchange law in force at the time of acquisition by the person.
• Payments were made through FCNR (B)/ NRE accounts or via foreign remittances received through banking channel
• in the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties
• If repatriation exceeds USD 1 million, prior RBI approval is necessary.

 Prohibition on acquisition or transfer of immovable property in India by citizens of certain countries
 

• Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong and Democratic People's Republic of Korea cannot, without prior permission of the Reserve Bank, acquire or transfer immovable property in India, other than on lease, not exceeding five years. For this purpose the term "citizen" shall include natural persons and legal entities.
  
  
• Above prohibition shall not apply to an OCI.

Legal & documentation requirements
 

Before proceeding with the sale, NRIs must have the following documents ready:

• Title deed and previous ownership records
• PAN card (mandatory for tax purposes)
• Overseas Citizen of India (OCI) card (if applicable)
• Aadhaar card (for residents; voluntary for NRIs)
• Encumbrance certificate
• Sale agreement and PoA (if applicable)

Tax implications & exemptions
 

Capital Gains Tax Breakdown
 

• Short-Term Capital Gains (STCG): If the property is sold within 24 months of purchase, gains are taxed as per applicable income tax slab rates (30% TDS).
• Long-Term Capital Gains (LTCG): If held beyond 24 months, gains attract a 12.5% TDS without indexation.

Exemptions under Sections 54 & 54EC
 

NRIs can reduce their tax liability through exemptions:

• Section 54: Reinvest the capital gains in another residential property subject to conditions specified therein.
• Section 54EC: Invest long term capital gains in long term specified assets within six months of the sale upto an amount of Rs.50 lakhs subject to conditions specified therein.

How to claim TDS refunds
 

If excess TDS is deducted, NRIs can file an income tax return in India to claim a refund. Using an IDFC FIRST Bank NRI Account simplifies the process of receiving refunds and managing tax compliance seamlessly.

Conclusion
 

Selling property in India as an NRI involves multiple steps, including document verification, tax compliance, and fund repatriation. Understanding legal regulations, adhering to FEMA guidelines, and planning tax implications are crucial for a smooth transaction. Leveraging the benefits of an IDFC FIRST Bank NRI Account ensures hassle-free fund transfers, compliance with RBI norms, and efficient handling of sale proceeds. With proper planning and the right banking partner, NRIs can navigate the complexities of property sales in India with ease.