Rules for selling property:
Selling a property owned or inherited by a NRI is not a big challenge. Confusion appears regarding the means of remitting of funds back into their country. There is a straightforward process.
As in the case of residents, NRIs selling purchased property after three years from such purchase have to pay long term capital gains tax which is normally 20%. The gains are calculated on the basis the difference between the sale value and the cost price of purchase.
The indexed cost is the cost of purchase calculated with the inflation. Calculation of the indexed cost of purchase is not a difficult task. There are many websites providing it. One can also seek the help of a calculator or a chartered accountant for calculation of the same.
NRIs selling inherited property in India:
For an inherited property, the amount of long term capital gains along with the cost to the person from whom the property is inherited is taken as the cost of purchase. NRIs are liable to Tax Deducted at Source which is normally 20 % on the amount. But in some cases NRIs can get a waiver of the TDS. When the NRI reinvests the capital gains in another property or in tax exempt bonds, the tax liability does not apply to him. In that case no TDS will be deducted.
If the NRI sells the property again within three years of the purchase, short term capital gains tax is imposed. It is calculated as the difference between the sale price and the cost price. A TDS of 30% irrespective of tax bracket is imposed.
NRIs selling such properties can file an application before the income tax authorities for exemption certificate provided in section 195 of the Income Tax Act. The application should be made in the same jurisdiction as that of their PAN (permanent account number). They are required to show proof of reinvestment of capital gains for getting the benefit. If the NRI purchases another property, the payment receipt has to be produced. If they invest in capital gains bonds, an affidavit in connection with it has to be sworn.
Section 54 of the Act:
Section 54 of the Income Tax Act states that if any NRI sells a residential property after three years from the purchase and reinvests the amount in another residential property within two years from such sale, the profit is exempted from tax up to the cost of new property. The sold residential property can be self-occupied or can even be rented. The new property has to be held for a minimum period of three years.