Navigating Tax Dilemmas: An NRI’s Journey in Indian Real Estate
Selling property in India as a Non-Resident Indian (NRI) is no walk in the park. The labyrinth of tax laws and bureaucratic hurdles can turn a simple transaction into a nightmare. Take, for example, the hefty 20% tax deducted at source—a surprise to many, including my friend Arjun, who sold his ancestral home last year. He was baffled by the deduction and only later learned that maintaining past tax returns could have eased his tax burden.
The Importance of Filing ITRs
Not filing Income Tax Returns (ITRs) is a common oversight among NRIs. The significance of filing ITRs voluntarily to keep records straight can't be emphasized enough - Assessment officers (AO) rely on past ITR’s to evaluate income and decide the TDS rate, without these records your chances of reducing TDS rate diminish. This resonates with my cousin Priya’s experience. She had to wait almost a year to get her capital untied from the tax department due to missing ITRs.
Real Estate Market Realities
The Indian real estate market often favors cash transactions, putting NRIs at a disadvantage, this can lead to selling properties below market value. A client experienced this firsthand when he had to sell his flat in Mumbai at a price much lower than he had hoped for, simply because he couldn’t accept cash.
Strategic Tax Planning
Careful planning is essential to navigate the tax implications and ensure compliance with both Indian and international tax laws. Understanding double taxation avoidance agreements and managing joint ownership are crucial. This will help avoid juggling between tax consultants in two countries to avoid paying taxes on the same income twice.
Lowering TDS Rates
Many NRIs don’t know that they can lower the default 20% TDS rate by submitting Form 13 online before selling their property. This requires documents like PAN, sale agreement, buyer’s TAN, bank statements, and past ITR copies. The process can take up to 5 weeks, so it’s best to plan ahead.
Remittance of proceeds
When it comes to remitting sale proceeds to their country of residence, Non-Resident Indians (NRIs) encounter specific rules and challenges. NRIs must obtain a 15CB certificate from a chartered accountant (CA) to do this. The 15CB process involves an audit where the CA verifies the transaction’s validity and ensures compliance with all conditions for remittance.
When property sale amounts are paid in cash, obtaining the certificate becomes challenging. Buyers sometimes insist on cash payments to save stamp duty. NRIs accept these cash amounts and deposit them separately into their NRO (Non-Residential Ordinary) account. However, this creates difficulties during remittance because the CA requires proof of these funds to issue the 15CB certificate. NRIs should avoid accepting cash payments if they intend to remit the entire sale amount.
Remember, staying informed and prepared is key to managing investments and maximizing returns in the evolving Indian real estate market.
