The right way to transfer an immovable asset is complicated, but owners need to do it.
On paper, it is easier to figure out how to transfer ownership rights, even if the property is worth a lot. This is true even if you are a Non-Resident Indian.
For NRIs, there are different rules and laws regarding taxes and other financial issues that come with a move.
The last few years have seen a new trend in the NRI property scandal: NRIs from North America and Europe are coming back to India to sell off their real estate to get extra money or make money from what they think of as a dead asset.
Many people have not talked about this, but it does make sense. Keeping real estate is not always possible, especially if you cannot keep up with it. As a result, as an NRI, you may have lived outside of India for a long time and now want to sell your home in India.
It is hard to find a buyer while in another country. However, the bigger problem is making sure you know all about tax implications and other rules.
Transfer of property in India for Indians who are not residents.
Acquisition and Transfer of Immovable Property under the Foreign Exchange Management Act, 1999, shows how a Non-Resident Indian or an Overseas Citizen of Indians can buy and sell real estate. This is called the “Master Direction.”
NRIs and OCIs who have a valid Indian passport can buy real estate in India from the Reserve Bank of India (RBI). Such a person can also give away any property that is not moving.
In these cases, the investor or buyer does not need to get permission from the RBI.
NRIs and OCIs do not have to tell the RBI if they buy a commercial or residential property in India.
People who are not Indian can buy as many properties as they want as long as they meet the rules set by the RBI and income tax laws.
Under the general permission of the RBI, an NRI can buy a home on his or her own or with another NRI. People who are NRIs and OCIs can also give or sell their real estate to other NRIs and OCIs and Indian residents.
To buy a home in India, if the NRI or OCI investor cannot come to India, he or she can hire an agent who has been given a legally binding power of attorney by the investor.
Many people could be an agent for an NRI or OCI. They could be someone the NRI or OCI trusts, like a family member or friend.
There is one exception to the above transactions. An NRI or OCI cannot buy or sell agricultural land, plantation property, or a farmhouse.
However, suppose an NRI inherits agricultural land, plantation property, or a farmhouse. In that case, they can only give it to people who live in India. This means that without permission from the RBI, an NRI or OCI cannot invest in farms.
There are many different ways to apply to the RBI, and they look at each one individually.
For NRIs and OCIs, there are some tax implications that they need to be aware of.
NRIs and OCIs who sell property in India must pay tax on the money they make from the sale, called Capital Gains Tax.
If the gains are short term or long term, the tax paid on them will depend on that. A long-term capital gain comes from owning a home for more than two years. A short-term capital gain comes from owning a home for less than two years.
In inherited property, the date and cost of the purchase are used to determine how long the owner held the property and how much it cost. This is the date and cost that the original owner paid.
This is how it would be explained: The number of long-term capital gains and how much the previous owner paid would be an excellent way to figure out how much it costs to buy a home.
Which is better: long-term or short-term gains.
If any, long-term capital gains (LTCG) are taxed at 20%. If any, short-term capital gains (STCG) are taxed at the NRI’s income tax rate based on the total income that the NRI makes in India.
After two years, when an NRI sells their home, the buyer has to pay TDS at 20%. There will be a 30% tax on the home’s sale if it is sold before two years.
A short-term capital asset is an asset that lasts for less than 24 months, like a car. This rule only applies to things that cannot be moved, like land, buildings, and homes. One that is held on to for more than two years is called a long-term capital asset.
Tax on NRIs who get their property as gifts
People who are not Indian citizens have to pay taxes on gifts they get in things like real estate, stocks, and bonds in India if they get more than $50,000 in them. Under Section 56 of the Income Tax Act, gifts from certain relatives are not subject to this rule. Gifts from a spouse are not subject to this rule.
Tax advantages for NRIs who sell property
As long as the seller is an NRI, he or she can get tax breaks under different parts of the Income Tax law. They can also get rebates, but only on their long-term capital gains (LTCG).
A tax under Section 54
Section 54 of the Income Tax Act gives the seller of a home a break from paying capital gains tax. The section only lets people who sell their homes get a break from paying capital gains tax if they use the money to buy another home.
Owners of residential property often sell their homes to buy another one because of things like moving, retirement, and so on. In this case, a taxpayer does not sell a piece of property for money but to move into a new home.
Section 54 of the Income Tax Act says that when a taxpayer sells a home and buys another one, the taxpayer is not taxed on the home’s sale.
NRIs can get back all the money they pay in LTCG taxes under Section 54 of the Income Tax Act, which says that they can. However, this can only be done if he or she invests the same amount in purchasing another piece of land.
Only the money from the sale has to be invested, not the whole amount. One year before or two years after the sale of the previous home, this investment must be made to get the full benefit of the money you put in.
Thus, if you buy land with the money you made and plan to build a house, the construction must be done within three years of the sale to get the rebate. If you have a lot of LTCG, you can get a tax break under this section. All the extra money you put into your new investment will not earn you any more money.
Terms and conditions that must be read and agreed to
From the tax year 2014-15, only one house can be bought or built with the money from selling a home to get a tax break under Section 54.
From the 2015-16 tax year, the government said that the new house must be in India for the NRI seller to get the rebate. NRIs cannot spend the money they make from selling a home in India on a home in another country.
If the new home is sold before three years have passed, the rebate would be retracted from the sale price.
A tax under Section 54EC
Suppose an NRI sells long-term capital assets and invests the money in bonds from the National Highways Authority of India and the Rural Electrification Corporation (REC). In that case, they will not have to pay capital gains tax on that money. They will be held for five years.
Terms and Conditions, you must read and agree to
There is no other way to get this money.
In order to get this rebate, you will have to invest before the deadline for filing your tax return.
People cannot spend more than Rs 50 lakh on these bonds in a year.
A tax break under Section 54F
NRIs who have made long-term gains on an asset other than a home can save money on taxes by investing in a home in India. In this case, you could buy another home one year before or two years after the profit was made.
To get the deductions for building, an NRI taxpayer can wait three years after he or she transfers a capital asset to be able to do so. If the house is sold within three years of being bought or built, the rebate will not be refunded.
Terms and Conditions, you must read
In order to make money, you need to invest more than just the profit you made. As long as only a portion of the money is invested, the tax bill would be based on how much of the money is not invested.
People who live outside of the country should not buy any more property, except for the one they own. He should also not buy anything new for two years after buying a house or three years after he builds a new one.
It is Section 54 vs Section 54 F.
People who pay taxes in the United States can get tax breaks for capital gains that will help them pay less in taxes overall. Sections 54F and Section 54 of the Income Tax Act are the main places to get many tax breaks. On a house or residential property, Section 54 gives tax breaks to people who make money for a long time. There are tax benefits for long-term capital gains under Section 54F if you own something other than a house or land.
If you are an NRI, now is the time to invest in the Indian real estate market because it is one of the fastest-growing economies. There are favourable laws, tax breaks, and many options.
NRIs can save money on TDS by taking intelligent steps to sell their home and even after getting the money. It is essential to stay updated on income tax rules for long-term and short-term capital gain tax before you sell anything.