A house to sell? For NRIs, it’s a pell-mell

There are tax and repatriation issues and delays that you must plan for

It was 8:30 pm on Sunday night and that meant Skype time with their NRI son for Mr and Mrs Das. The appreciating dollar made a good topic and led to their US-resident son bringing up the controversial issue of selling his apartment.

“It is a lot of work for you to manage the flat, and trouble for the tenant to pay the rent — there is TDS to file every time. All for what? I paid $1 million five years ago, which was about ₹63 lakh. Price appreciation has been poor and even if it goes for ₹80 lakh — 27 per cent in five years — my gain will be lower. This is because ₹72 lakh is $1 million now, and 14-15 per cent is lost just in currency depreciation. There are also commissions, stamp duty and other charges to pay,” he said.

Tedious process

The currency angle made his mother relent. “We need to plan for income tax issues, and think about the delays and the currency uncertainties when you repatriate the money.

“As per income tax rules, the property buyer is required to deduct a TDS of 1 per cent rate if the seller is a resident and the property value is ₹50 lakh or more. In case of NRI sellers, TDS is deducted at 20 per cent, plus surcharge and cess, for any property value. The deduction must be on the full-sale consideration — not just gains,” she explained.

She continued: “What it means is that the buyer must have a Tax deduction Account Number (TAN). Most individuals may not have one and it takes two weeks to get it. For every payment made — say, advance, any instalment — tax must be deducted. This must be deposited within seven days from the end of the month, and the TDS returns should be filed electronically within the due dates for the period. The buyer must issue a TDS certificate in Form 16A.”

“What if they don’t do these?”, asked her son to his retired IT official mother. “If the buyer fails to deduct or pay the amount deducted, they will be treated as an assessee in default, as per Section 201 of the Income Tax Act. They will be subject to interest payment, penalties and prosecution,” she cautioned.

Saving on tax

“If my profit is only ₹5 lakh, instead of paying tax on this or avoiding tax by buying eligible investments, we end up paying tax for ₹80 lakh,” he exclaimed.

“You can claim the refund of excess amount deducted by filing a tax return,” Mrs Das said.

“But it takes a long while to get the money back. Isn’t there any other way?” her son asked. Mr Das, whose friends are chartered accountants, jumped in.

“You can get a certificate from a CA for the actual tax. For example, if there is no capital gain or if there is a loss, you can apply for NIL Tax Deduction Certificate.

“If the actual capital gain tax payable is less than TDS under Section 195, you can get a Lower Tax Deduction Certificate. If you want to re-invest the capital gain to save tax, apply for Tax Exemption Certificate. For this, you need to show proof of reinvestment — this may be an allotment letter or a payment receipt if buying a new house, or an affidavit stating that you will invest in capital gains bonds under Section 54EC,” he laid out the scenarios.

Mr Das added: “My friend Venkat Krishnamurthy, Chartered Accountant, V Ramaratnam & Company, says it takes a month or more to get the certificate. You must give this to the buyer, so he can deduct TDS accordingly. Forms 15CA and 15CB can be filed by the CA online, and the money can be transferred to your country of residence.”

“Can I transfer all the money?” the son asked. Mrs Das answered: “The rules differ based on a few things.

Repatriation

“If the property was bought with Indian earnings, the sale proceeds are deposited in the Non-Resident Ordinary (NRO) account. You can repatriate it if the property was held for at least 10 years. If not, you must wait till 10 years have elapsed. In case of inherited property, there is no lock-in period and you can repatriate after showing proof of inheritance and tax-clearance certificates.

“In your case, as the property was bought when you were abroad, the amount you can repatriate is limited to the foreign exchange remitted through banking channels for buying — for example, payments through Foreign Currency Non-Resident (FCNR) or Non-Resident External (NRE) bank accounts, for the purchase or loan repayments. The balance amount from the sale can be credited to the NRO account and can be remitted.

“Up to $1 million can be repatriated in a financial year from an NRO account, after giving proof that all taxes have been paid. Repatriation is restricted to sale of two residential properties,” she noted.

The writer is co-founder, RaNA Investment Advisors.

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