When Non-Resident Indians (NRIs) sell property in India, there are specific legal, tax, and repatriation rules to follow. Understanding these rules is essential to ensure compliance with the Foreign Exchange Management Act (FEMA) and the Reserve Bank of India (RBI) guidelines, while also minimizing tax liability.
In this blog, we’ll explain where NRIs can deposit the sale proceeds, how to remit funds abroad, the role of tax forms like 15CA and 15CB, and exemptions available to reduce capital gains tax.
Where Should NRIs Deposit Property Sale Proceeds?
1. NRO (Non-Resident Ordinary) Account
The primary destination for sale proceeds of immovable property in India is the NRO account. Any income earned in India—including rent, dividends, and property sale proceeds—must be credited here.
- From the NRO account, NRIs can repatriate up to USD 1 million per financial year, subject to:
- Payment of all applicable taxes.
- Approval from an authorized dealer (bank).
2. NRE (Non-Resident External) Account
In rare cases, if the property was:
- Purchased using funds from an NRE account, and
- Held for over 14 years,
then the sale proceeds may be credited back into the same NRE account. However, this depends on the bank’s internal policy and FEMA compliance checks.
Tax Implications When Selling Property in India
Selling property as an NRI triggers capital gains tax and TDS (Tax Deducted at Source) obligations:
- Long-Term Capital Gains (LTCG): 20% tax rate after indexation if the property is held for more than 2 years.
- Short-Term Capital Gains (STCG): Taxed at applicable income tax slab rates.
Capital Gains Account Scheme (CGAS)
If you’re unable to reinvest your capital gains before the income tax return filing deadline, you can defer your tax liability by:
- Depositing the gains in a Capital Gains Account under the Capital Gains Account Scheme, 1988, available in most PSU and authorized banks.
- This ensures that you remain eligible for capital gains tax exemptions later under Sections 54, 54EC, or 54F.
Tax-Saving Exemptions for NRIs
NRIs can reduce tax liability using these capital gains exemptions:
- Section 54EC: Invest gains in government-backed bonds (like NHAI or REC) within 6 months of sale—maximum investment up to ₹50 lakh.
- Section 54F: Reinvest full sale proceeds in another residential property in India to avail full exemption (subject to specific conditions).
Remitting Sale Proceeds Abroad: FEMA and RBI Guidelines
Once credited to the NRO account and taxes are settled, the funds can be repatriated abroad. NRIs must follow FEMA regulations and RBI guidelines for a seamless remittance process.
Required Documentation:
- Form 15CA: Declaration of remittance details to the Income Tax Department.
- Form 15CB: Certificate from a Chartered Accountant (CA) verifying the nature of the remittance and confirming that due taxes have been paid.
These forms must be submitted to your authorized dealer bank before initiating the outward remittance.
Key Takeaways for NRIs Selling Property in India
- Always deposit sale proceeds into your NRO account.
- Repatriation of up to $1 million per financial year is allowed after taxes.
- You may use CGAS to defer taxes if reinvestment isn’t immediate.
- Claim tax exemptions via Section 54F or 54EC.
- File Form 15CA and 15CB to repatriate funds legally.
- Comply with all FEMA and RBI rules to avoid penalties.
Final Thoughts
Selling property in India as an NRI can be smooth and tax-efficient—if you follow the correct legal and financial steps. Partner with a tax advisor or property legal expert to ensure complete compliance and to optimize the repatriation of your funds.