Procedure on Sale of Immovable Property in India

As per Indian Income Tax law, any payments made to Non Resident is liable to withholding tax at the rate specified on the total sum to be paid. The withholding tax rate in case of capital asset which is held for more than 24 months is 20% plus applicable surcharge and cess. However, the law provides for the procedure of making an application to the tax authority to restrict the tax deduction only to the portion of gain instead of complete sale value. Hence, it is very important for every Non Resident who sells their Immovable Property in India to following the right steps under the expert advice.

The tax law also has several reinvestment options to reduce the possible tax liability. Hence, once you have identified the buyer and crystallized the selling price, you should ideally follow below steps:

  1. If the property was purchase prior to 1.4.2001, a valuation report needs to be obtained from a Government Recognized Valuer. This will be considered as cost of acquisition is such cases.
  2. As a next step you should work with your tax advisor to minimize your tax outflow and look at various reinvestment options to reduce the possible tax liability.
  3. If you had incurred any cost on improvement of the property, the same needs to be considered while computing capital gains tax and finalizing the computation of Capital Gains Tax.
  4. Apply to Tax Authorities for Lower/NIL Tax certificate to restrict the tax deduction only on the gains while receiving the sale consideration from the buyer.
  5. Vet the Sale Agreement drafted by the Buyer's Lawyer.
  6. Applicable tax to be deducted & paid by the buyer and execute the deal.
  7. Consult your Chartered Accountant and obtain necessary certificate from them to repatriate funds to your overseas bank account if you so wish.
  8. Ensure to file your tax return for the year declaring your Capital Gains and taxes thereon.

Our team is vastly experienced in advising and assisting Non Residents on this subject from start to end at each step of the execution. In case you need any further information on this, write to our expert on This email address is being protected from spambots. You need JavaScript enabled to view it.

Avail benefits of DTAAs

Double Taxation Avoidance Agreements (DTAA) is essentially bilateral agreements entered into between two countries that aim to avoid or eliminate double taxation of the same income in two countries. These DTAAs are popularly even known as Tax Treaty.

The Tax Laws of many countries have provisions to tax their residents on their global income. Accordingly many of our fellow Indians who leave India and become tax resident in overseas country are liable to pay tax on their Indian Income earned out of their assets or investments in India. This results to paying tax in India and even in overseas country.

To overcome this, the treaty provides for beneficial clauses to claim credit of taxes paid in India while computing tax liability in the overseas country. The treaties also have many beneficial provisions related to withholding taxes and tax rates that restrict the right of India to tax income at the rate specified in the treaty which overrides the tax rates and provisions of local tax laws of India.

For example, rate of tax on Interest Income under treaty with many countries is restricted to 10% and hence you may opt to get taxed in India on this income at 10% instead of tax rate as per local law which may go up to 30%.

India today has DTAAs with almost every country across the globe and every Individual or entity having cross border income should avail maximum possible benefits of it.

While understanding the benefits it is also important to know that in order to avail benefits of treaty it is mandatory to provide the proof of residency in form of Tax Residency Certificate issued by the revenue authorities of the country of your residence.

In case you wish to know more on this, write to our International Taxation expert on This email address is being protected from spambots. You need JavaScript enabled to view it.

Basic Compliance of Foreign Exchange Laws

Residential status and nature of transaction i.e. capital account transaction (e.g. purchase/ sale of shares, property, etc.) or current account transaction (e.g. remittance of income on shares, property, etc.) are the cornerstones of Foreign Exchange Management Act (FEMA).

Residential Status:

 Residential status under FEMA is the basis of applicability of FEMA i.e. transactions of a resident even outside India are covered by FEMA. The determination of residential status under FEMA is substantially different as compared to that under the Income Tax Act. Under the Income Tax Act, residential status is determined based on only the no. of days of stay in India. Under FEMA, residential status is determined based on primarily the intention of the person.

'A' would be a non-resident under FEMA as soon as he goes out of India for taking up employment outside India irrespective of the duration of his stay in India. Accordingly, 'A' would be outside the ambit of FEMA as far his transactions outside India are concerned (e.g. he can freely invest or carry on business abroad out of his earnings abroad).

Nature of Transactions:

The golden rule of FEMA is, "All capital account transactions other than those permitted are prohibited while all current account transactions other than those prohibited are permitted".

Under FEMA, certain types of transactions do not require RBI permission while others either require prior approval of RBI/ Government or it is mandatory to inform RBI of the same. Although total capital account convertibility does not exist under FEMA, there is full convertibility to the extent of USD 1 million per calendar year for NRIs.

Basic Compliances:

Non Residents are not permitted to hold Resident Bank accounts and hence the banker should be intimated about change of residential status. The bank will immediately designate resident bank account as "Non-Resident Ordinary" (NRO) account. The account could be in any form Saving, Current, Fixed Deposit or Recurring Deposit. The account holder is now permitted to repatriate up to USD 1 million per calendar year out of NRO account for any bona-fide purpose.

Non Residents should also ensure correcting reporting of their transactions to RBI or obtain necessary permission wherever required.

In case you need any further information, write to our FEMA expert on This email address is being protected from spambots. You need JavaScript enabled to view it.

Key for Returning NRIs

Residential Status and benefits under Income Tax law:

 The Indian Tax law has the special provision on the Residential Status for the Returning NRIs who would generally be assessed as RNOR on his return to India for couple of years.

The impact of RNOR status is that foreign passive incomes like interest, dividend, royalty etc. would not be taxable in India in respect of a person who is RNOR. Even share of profit of a partnership firm or any other business income would not be taxable in India, if the business in respect of which such income arises is not controlled from India. In other words, all foreign sourced income of RNOR is not normally taxable in India unless it is derived from a business controlled in or a profession set up in India.

Hence, Immaculate planning of income tax implications in advance i.e. prior to return to India holds paramount significance for NRIs intending to return to India.

Residential Status under FEMA:

The Residential status under FEMA is the basis of applicability of FEMA i.e. transactions of a resident even outside India are covered by FEMA. The determination of residential status under FEMA is substantially different as compared to that under the Income Tax Act. Under the Income Tax Act, residential status is determined based on only the number of days of stay in India. Under FEMA, residential status is determined based on primarily the intention of the person.

Residential status and nature of transaction i.e. capital account transaction (e.g. purchase/ sale of shares, property, etc.) or current account transaction (e.g. remittance of income on shares, property, etc.) are the cornerstones of Foreign Exchange Management Act (FEMA).

 'A' would become a resident for FEMA with effect from the date of arrival in India.

Compliances as per FEMA for Indian Assets:

'A' is required to re-designate all his banking accounts as Resident Accounts by informing the banker of change in residential status. FCNR / NRE Fixed Deposit account may be continued till maturity at the agreed rate of interest till maturity. On maturity, the proceeds of NRE/ FCNR deposits can be converted into RFC account. Interest earned on NRO account till date of return can also be credited to RFC account.

Similarly, one should inform of change in status to companies in which shares/ debentures are held as also to firms in which one is a partner.

Compliances as per FEMA for Overseas Assets:

Foreign currency, foreign security or immoveable property acquired, held or owned by an 'A' while he was abroad or inherited from a person who was resident outside India can be continued to be so held and owned even after the A's return to India for permanent settlement.

There is no specific provision on movable assets like jewellery, motorcar and personal household effects. Accordingly 'A' may continue to hold/ dispose such movable assets without permission of RBI though to avoid any possibility of litigation; he may inform RBI of the same. If required, overseas assets can be repatriated to India. Proceeds of assets held outside India at the time of return, can be credited to RFC account.

RFC Account:

A returning NRI can open a Resident Foreign Currency (RFC) account. Funds in this account are free from all restrictions regarding utilization in India/ abroad including investment (e.g. immoveable property, shares) in any form outside India. The following funds are eligible for being held in RFC account:

  • Transfer from NRE/ FCNR account
  • Funds realized on conversion of overseas assets
  • Income from overseas assets
  • Pension and other benefits from employer abroad
  • Foreign exchange brought in India at the time of return to India

However it needs to be appreciated that the funds held in the RFC account offer a low return compared to other investment avenues in India.

Our team has a vast experience of conducting an advisory session for such returning NRIs to guide them on the provisions of various laws in India and the compliances under these laws to assist them planning their finances and taxes on their return and ensure correct compliances.

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Advisory and Assistance for Remittances IN & OUT of India

While remitting funds into India, a proper channel of remittance needs to be followed for correct reporting. This step is very important for justification when these funds have to be repatriate back outside India.
NRIs are permitted to repatriate funds out of India to the extent of USD 1 million per calendar year once the applicable tax on the Income is duly paid.

The documents to be submitted for the purpose of remittance is -

  1. Declaration from Remitter
  2. Certificate from Chartered Accountant
  3. Declaration and undertaking as per FEMA

Our team is vastly experienced in advising and assisting NRIs on the remittances and respective compliances. If you need any clarification, ask our experts on This email address is being protected from spambots. You need JavaScript enabled to view it.

Transfer of Funds from NRO to NRE accounts in India

Transfer of funds from NRO to NRE account is permitted without any restriction to the extent of USD 1 million per calendar year once the applicable tax on the Income is duly paid.

This is fairly simple process and the documents to be submitted for the purpose of remittance is-

  1. Declaration from Remitter
  2. Certificate from Chartered Accountant
  3. Declaration and undertaking as per FEMA

Write to our experts on This email address is being protected from spambots. You need JavaScript enabled to view it. if you need any clarification.