|Selling your house back home |
Posted on: Fri 23-Mar-2012
|Who can an NRI sell a property to?
The NRI can sell it to another NRI; a person of Indian origin (PIO) or to any person resident in India. However, when it comes to agricultural land or a farm house, it has to be sold to a citizen and a resident of India.
Does an NRI need to have a bank account in India for the sales proceeds to be credited? Does one need to have a PAN (Permanent Account Number) card?
A Pan card is definitely required for the registration of the document. If one does not have it, they must apply for one under the NRI or PIO status applicable. At the time of sale, a NRE (non-resident external foreign exchange) or NRO (non-resident ordinary rupee) bank account is required for conducting any transaction. Whether or not the property being sold by the NRI was purchased when the person was a resident Indian or as a non-resident Indian, it has to be credited to an NRO account.
What are the taxes the NRI has to pay on the amount paid on the property?
The sale of a property triggers capital gains tax in India. The capital gains tax on property is assessed as income arising from India and is taxable as it would be in the case of a resident Indian.
The short-term capital gains would be taxed at normal rates, of up to 30 per cent, plus surcharge. The long-term capital gains would be taxed at 20 per cent post indexation for inflation as per the Cost Inflation Index circulated by the Income Tax Department. [Capital gains tax is classified as long term if the property is held for over three years and short term if sold within three years of purchase].
Can the sales proceeds be fully repatriated?
According to Reserve Bank of India guidelines, an NRI can repatriate the sale proceeds outside India, provided the purchase was in accordance with the provisions of the foreign exchange law in force at the time of purchase. The amount to be repatriated cannot exceed:
The amount paid for the purchase in foreign exchange received through normal banking channels, or;
the amount paid out of funds held in a Foreign Currency Non-Resident Account (FCNR), or;
The foreign currency equivalent (as on the date of payment) of the amount paid from funds in a Non-Resident External (NRE) account;
If the residential property was purchased by NRIs with loans from authorised dealers or housing finance institutions, the repatriation cannot exceed the amount of the loans repaid out of the foreign inward remittances received through normal banking channels or by debit from their NRE or FCNR accounts.
If the property was acquired using funds in an NRO account, then the NRIs or PIOs have to credit the sale proceeds to the NRO account. And the amount allowed to be repatriated is limited to $1 million (Dh3.67 million) per financial year out of the balance in the NRO account.
However, if the NRI bought the property when resident in India, the sale proceeds have to be credited to the NRO account and the amount allowed to be repatriated is limited to $1 million per financial year from that NRO account after all tax dues have been paid.
The same rules of tax and repatriation apply in the case of residential property received as a gift or which is inherited.
In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.
Is there any way to get some relief on the capital gains taxes?
If one has long-term capital gains, one can avail tax exemption u/s 54 or 54F depending on whether the property sold was a residential property or land. The capital gains (where the sold property is a residential property) or the sale proceeds (in case of land) have to be re-invested in another residential property.
Alternatively, the funds can be invested in capital gains bonds from an NRO account on a non-repatriable basis.
In the latest Indian budget there is an additional avenue which has opened up: the reinvestment of funds in equity of any manufacturing small to medium enterprise (SME) for the purchase of new plant and machinery. By doing this, the exemption would still be available. Short-term capital gains cannot be re-invested into bonds or another house to save tax.
How long does it take to complete all the transaction formalities?
The dynamics of secondary property sales differ from location to location. Pricing and location are key aspects of all deals. If the location, product and pricing are right, the property can sell in a matter of days. However, if any one of the parameters is not aligned to market conditions, putting a timeline to the sale is very difficult. But, as one expert from Colliers International India says, it could take anywhere from three to six months on an average. Most properties that extend this deadline are either too expensive or have a serious quality issue.
What is the best way to sell property? Selling a property in India would almost always require anywhere from a single exclusive broker to a group of two to three brokers who become key contacts. This ensures adequate market coverage.
However the trend now is to hire one exclusive broker. This increases accountability and the seller must only deal with one point of contact.
However it is essential to do this with known reputed companies which have established track records.
Currently there is no law that regulates the brokerage fee which varies from city to city and within cities. Generally, the lower the value, the higher the brokerage fee.
The average trend is 1-2 per cent. However there have been rare cases when the same has gone up to 3-4 per cent or come down to 0.5 per cent.
Selling through relatives, or advertising yourself is a ad-hoc process that may not generate results or may delay the entire process. The first thing a seller should check is if any existing residents are interested in purchasing the property. This expedites the process considerably.
Does doing up your property help?
Sprucing up the property definitely helps as even the smallest oversights in terms of aesthetic appeal and maintenance can affect the price.
Simple whitewashing and cleaning is generally adequate to help secure a sale.
What kind of documentation needs to be put in place at various stages?
It's critical to have all title papers ready. This would largely entail:
1. Sale agreement (registered original copy).
2. All earlier sale agreements (history of sales).
3. A certificate of a housing society certifying that the person whose name is on it is the rightful owner of the property.
4. Copies of maintenance bills for the immediate three months prior to the sale.
5. A copy of the electricity bill
The process varies from transaction to transaction, but in general:
On agreement of a price and all terms a 10-25 per cent deposit is paid to the seller and an MOU (memorandum of understanding) is entered into;
The copies of the ownership documents are shared with the buyer as required;
A public notice is published in local papers for due diligence;
A final sale agreement is entered into with registration being done simultaneously with the exchange of original documents and the balance of the amount.
Under what conditions do I become an NRI?
If you have not been in India for 182 days or more during the relevant previous year;
If you have not been in India for 60 days or more during the previous year and you have not been in India for 365 days or more during the four years prior to the previous year. (Gulf News)