The Union Budget 2022 had something for High Income Non-Resident Indians (NRIs) selling real estate in India. The Minister of Finance has proposed to cap the rate of surcharge on long-term capital gains (LTCG) at 15% resulting from the transfer of any long-term capital. The objective is to bring parity with the surtax rate on the LTCG tax of the various assets. Currently, LTCGs on the transfer of immovable property attract a surcharge of up to 37% in the event that the income of individual taxpayers exceeds the threshold of ₹5 crore in a financial year, while the LTCG surcharge on listed securities is already capped at 15%. A large number of NRI property sellers fall within the currently applicable surcharge range of up to 37%. In addition, NRIs must bear the withholding tax (TDS) on the total value of the property and not just on the gains. Capping the surtax rate at 15% on LTCGs would provide enormous relief. The tax gains amount to approximately 4.5%. Let’s look at the tax implications that sellers of NRI property have to deal with:
FT under Section 195: The TDS must be deducted at the time of any payment to an NRI. Information about the TDS deducted and the rate at which it was deducted must be mentioned in the sales document between the NRI seller and the buyer. The TDS deducted by the buyer must be deposited through the challan/ITNS281 number for the payment of the TDS no later than the 7th of the month following that in which the TDS was deducted. The TDS can be deposited through banks authorized by the Government of India or the Department of Income Tax (IT) to levy direct taxes.
Property buyers must also first obtain the TAN under Section 203A of the Computers Act 1961 before deducting the TDS. The TAN can be obtained by completing and applying for Form 49B. Also note that the seller cannot request a lower TDS certificate without having the buyer’s TAN. However, it can be noted that the surcharge from fiscal year 2022, or April 1, will decrease in line with the proposed Union budget. It is important to remember that the above deductions are made from the total payment and not from the gain. For example, for goods with a value ₹6 crore (which is > ₹5 crore), the applicable TDS rate will be 28.496%. Once the surcharge rate is capped at 15%, the highest effective TDS rate will be 23.92%, instead of 28.496% currently, which means a savings of more than 4.5% for NRIs.
Remittance of assets by NRO/PIO: NRI or a Person of Indian Origin (PIO) may pay up to $1 million, per financial year, from the balances held in his/her Non-Resident Ordinary Rupee (NRO) account / proceeds from the sale of assets (including assets acquired through settlement inheritance). Initially, the proceeds from the sale must be credited to the NRO account. If the seller can satisfy the bank that the property was acquired through his international funds or that the payment for the acquisition of the property was made through his NRE account, then he can transfer funds from NRO to NRE and repatriate them.
Also note that the seller would need a copy of the registered bill of sale to make the discount. This is a very important point to keep in mind when the register runs towards the end of the fiscal year or the end of March. The seller may miss the annual limit if a scanned copy of the registered bill of sale is not shared with the bank. We believe that, for NRIs looking to sell their property, taking advantage of the reduced 15% capital gains surcharge, from April 2021, will be very beneficial.
Rakesh Agarwal is Senior Vice President at India Sotheby’s International Realty.
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