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Selling a property in India that you currently own but will not use should be a pretty straightforward process. However, the tricky part is not 'finding the right buyer' but 'getting the funds transferred to the United States after selling the property in India.
Multiple taxes and lengthy documentation requirements for anyone looking to sell their house in India and transfer their funds to the US can be overwhelming.
In this article, we will explain the necessary steps, required documentation, and the tax implications for getting the funds transferred to the US after your property has been sold in India.
Prerequisites For An NRI To Repatriate Money After Selling Your Indian Property
Non-resident Indian (NRI) is a residential status determined by an individual's tax liability. Technically, an NRI status is more a taxation status than a residential status, and a citizenship status does not have an impact.
Who Is An NRI?
An Individual's NRI status is determined based on the period of stay of the taxpayer in India and is computed separately for each year.
OR
Can An NRI Inherit Immovable Property In India?
Yes. NRIs, PIOs, and foreign nationals of non-Indian origin can inherit immovable property in India.
However, citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, and Bhutan need to get prior approval from the Reserve Bank of India (RBI).
From Whom Can An NRI Inherit Immovable Property?
An NRI can inherit immovable property from another NRI, PIO, or foreign nationals of non-Indian origin.
Can An NRI Sell Their Inherited Property In India?
Mostly yes, but it depends on the type of property.
Residential or commercial property in India that you have inherited or bought can be sold to another NRI, a Person of Indian Origin (PIO), and a resident in India.
Agricultural land, plantation property, or farmhouse acquired by way of inheritance can only be sold to Indian citizens permanently residing in India.
If you are a PIO, you will need prior approval from the Reserve Bank of India.
Can An NRI/PIO Repatriate The Sale Proceeds Of Their Inherited Property?
NRIs and PIOs can repatriate the sale proceeds of the immovable property inherited from a person resident in India.
You must prove through evidence that you did inherit the property along with all the necessary tax clearance certificates from the Income-Tax authority. Keep in mind that the amount should not exceed USD one million per financial year (April-March), according to the RBI guidelines.
Can An NRI/PIO Repatriate The Sale Proceeds Of A Property Received As A Gift?
Yes, keep in mind that if the immovable property was acquired by way of gift, the sale proceeds should be credited to NRO account only.
From the balance in the NRO account, NRI/PIO may remit up to USD one million per financial year (April-March). Provided the remitter has filled all documents required by the RBI and the Income-tax authority. We will discuss the documentation and taxation later in the blog.
Can I Use My NRE/NRO Account To Repatriate The Sale Proceeds Of Immovable Property?
The answer depends on tax status at the time of purchase, as laid out by the RBI under FEMA.
Let's break it down.
Repatriation Of Sale Proceeds Of A Property Bought As A Resident Of India
If you bought the property when you were a resident of India, the sale proceeds must be credited to your Non-Resident Ordinary (NRO) account. A few conditions are:
You can do this repatriation if you have held the property for at least ten years. If you have kept the property for less than ten years, you can't repatriate the money immediately.
You need to keep the funds in your NRO account until it completes the ten-year period and then transfer.
Let's say you bought the property in 2012 and sell it in 2022. You can freely repatriate your sale proceeds after fulfilling the conditions required by the banks and tax authorities.
If you had sold the same property in 2021, you would need to keep the sale proceeds in your NRO account till 2022 till you can freely repatriate in 2022.
The conditions are different if you were an NRI at the time of purchase. For instance, waiting for ten years to complete repatriation doesn't apply to sales proceeds of properties bought by NRIs with their foreign money.
Repatriation Of Sale Proceeds Of The Property Bought As A Non-resident Of India
The sale proceeds of the property that you have purchased after you become an NRI can be remitted outside India only after certain conditions are met. The conditions are as follows:
Documents Required To Transfer Sales Proceeds Of A Property In India To The United States
Modes Of Funds Transfer To The USA
An NRI can send money from India to the US in many ways as long as they are sent through an Authorized Dealer (AD) that includes banks, money transfer agents, Non-Banking Financial Company, etc approved by the Reserve Bank of India.
However, we recommend sticking to your bank due to the technicalities of repatriation of funds pertaining to the sale of immovable property.
Bank to bank transfers are facilitated through the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network. Essential documents for a bank to bank transfers are:
Details Of The Sender & Receiver Such As:
Upon submission of the documents, the money will be transferred to the beneficiary account. The best Indian banks to send money to the USA from India are :
NRIs and PIOs are allowed to repatriate an amount up to USD one million per financial year subject to mandatory documentation and tax compliance through Authorised Dealers.
Tax Implications On Money Sent To The US From India
Tax Implications In The U.S. For Money Received From India
The funds sent to a US bank account from India are not taxable. However, if the funds exceed the USD 100,000 mark for any financial year, they must be reported to the Internal Revenue Service (IRS) by filling out form 3520.
U.S. persons (and executors of estates of U.S. descendants) file Form 3520 with the IRS to report:
If you receive more than $15,000 in 2021 or $16,000 in 2022 as a gift, you must file Form 709 with the IRS. The IRS allows you to receive up to $11.7 million over your lifetime without paying gift tax in the US.
You would also be required to declare your gains or losses on property sale in your US Tax Return under Section D of Form 1040. A declaration does not necessarily mean tax liability.
You can deduct the taxes paid in India since India has a Double Taxation Avoidance Agreement (DTAA) with the United States.
Tax Implications In India For The Property Sold In India
Tax implications for an NRI are similar to the resident Indian when it comes to funds from the sale of immovable property, except for the Tax Deducted at Source (TDS) provisions.
Tax Deducted At Source (TDS)
When an NRI sells a property, the buyer is liable to deduct TDS at 20 percent if the property was sold after two years from the date of purchase. If the property has been sold before two years from the date of purchase, a TDS of 30 percent shall be applicable.
To reduce the TDS on the Sale of Property, you can file an application using Form 13 with the Income Tax Department to issue a Certificate for Nil or Lower Deduction of TDS.
Capital Gains Tax
When an NRI sells a property in India, they are also liable to capital gains tax. The amount of tax payable depends on whether it's a short-term or a long-term capital gain.
As per the Income Tax Authority, If you sell your property within 36 months or three years of acquiring it, it's considered a short-term capital gain. If you sell it after three years, it's considered to be a long-term capital gain.
The tax rates and tax benefits applicable to the reinvestment of these two types of gains vary. Long-term Capital Gains on the sale of real estate are taxed at 20 percent, plus a cess of 3 percent if the sale fulfills certain conditions.
The tax on short-term capital gains, which refers to the sale of capital assets within three years from the date of purchase, will depend on the income tax slab rate. Based on your annual income, you will pay an applicable short-term capital gain tax.
You can get an exemption or reduce the capital gain tax by purchasing another property to the extent of the total amount or other capital assets such as government bonds to reduce the burden of capital gains tax.
Tax Collected At Source (TCS)
As per the Union Budget 2020, 5 percent Tax Collected at Source (TCS) is applicable on remittance made under LRS for the amount exceeding INR 7 lakh since October 1st, 2020, in a financial year.
In conclusion, repatriation of funds from India to the US is complicated and a lengthy process. If you are an NRI or PIO currently living in the U.S., completing the documentation will be cumbersome.
We recommend working with a chartered accountant and a certified public accountant familiar with the laws of both countries viz. India and the USA laws.
Competent CAs in India can help you file all the documents listed above, and they can also help you with the mandatory forms required by the IRS.
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