Buying or selling a property is not an easy task. Things become more complicated if you are an NRI (Non-Resident Indian) or PIO (Person of Indian Origin) who has stayed away from the country for quite some time and NRI inherited property comes with many rules and legal implications. One fine day, when you know that you have inherited a property in India, you would surely be tempted to enjoy profits and returns off it. Let’s understand, how can you sell the inherited property and what are the tax implications.
Sale process to be followed by NRI
NRI inherited property needs to be verified for the clear ownership and titles first, to start the selling process. This is done by referring to the will, if any, left behind by the last owner of the concerned property. The ‘patta’ from municipal corporation also known as ‘khaata’ records are essential to prove the clear ownership.
In case the title is not transferred in records but just mentioned in will, the process called ‘mutation of revenue records’ needs to be followed. This means the NRI will have to get the property title transferred in his or her name. In the absence of a will, a succession certificate from the court is to be obtained to get the title of the property.
Documents to be acquired for selling a NRI inherited property
There is a string of documents an NRI needs to have in place to sell the property inherited in India. These documents are:
- Original purchase agreement: This document is same as the title of the property document.
- Share certificate in original: This document is issued by the co-operative society in which the residential unit to be sold is located. In case it is missing, the duplicate copy is to be obtained. Also, the NRI has to write an undertaking that the property is mortgage-free. In addition, he may require issuing a notice in the newspaper and giving information on the society’s notice boards to prove that there are no objections on selling the property to the buyer on the particular NRI inherited property.
- PAN number: A few select countries, are the places where PAN numbers are issued as of now. The NRI’s or PIO’s can apply for PAN number using Form 49AA. Quoting this number is essential while doing a transaction involving more than fifty thousand, which is something of a common occurrence in the matters of selling a property.
- Form 60: If the NRI is not able to furnish PAN number, he has to submit the Form 60 at the registrar’s office.
- Approved property plan: The plan of property to be sold is to be approved by the municipal authority, the owner should have relevant occupancy certificate too, for the same.
Guidelines on the actual process of selling a property
While selling an inherited property in India, the NRI can carry out the process on his own with the help of trusted family members in India. In case of no trustworthy person or certain help in India, one can take the help of professional firm or company dealing in the property matters such as HousingMan for NRI inherited property. The professional real estate company has legal experts, brokers, tax consultants etc. on panel and thus, is able to provide end-to-end solutions to the seller. Therefore, once the inheritance of property by NRI is established and all the documents collected, he may entrust the professional company with the process of selling.
The process of selling a property by an NRI begins with identification of the right price of the property. Recently transacted properties of the area, locality or neighbourhood, give an idea about the probable price range of the property in question. The company hired to carry out the process too, may have in-house research data to help the seller with the price value.
Once the appropriate buyer is found, they can go cash or cashless way for completing the transaction. These days, cashless transactions have also become common as compared to the past times when real estate was run mostly on cash component. With better regulations in place, cashless component has overtaken the way transactions are being done in property dealings.
Admit PoA or full power of attorney?
One important thing for an NRI to note is – giving full power of attorney to any person in India is not necessary to carry out the property related proceedings. Admit PoA (Power Of Attorney), is an arrangement that exempts the NRI from staying in India till the completion of selling process is enough. In the case of Admit PoA, all documents and related certificates should be signed by the NRI and the person given the Admit PoA would represent him only for the registration purposes.
In case the NRI chooses to give full PoA, he is required to come to India once to sign the PoA, drafted in India, in front of the consulate. This PoA is normally made in the name of someone trustworthy such as a friend or a relative. The process of selling varies from company to company. Some companies will get all the documents prepared with the help of PoA and would then send the document to the NRI for getting it signed. The ensuing process of registration is then, carried out by the PoA holder.
Rules pertaining to sale of agricultural land
All kinds of properties except agricultural land can be sold by an NRI to any NRI, PIO or resident Indian. NRI is allowed to sell the agricultural land only to the resident Indian; this rule is not the same for the inheritance of property by PIO. A PIO, can sell the agricultural land property to only that resident Indian who is the Citizen of India too, as well as permanently residing in India. Thus, interpretation of resident Indian and related aspects is necessary and should be as per FEMA (Foreign Exchange Management Act) regulations whenever property selling by NRI or PIO is in question and NRI inherited property.
Tax implications of property selling by an NRI
Here is a point wise explanation of the tax liability that arises out of selling a property by an NRI:
- The property sold from three years of the date of purchase makes NRI liable to pay 20% tax on the long term capital gains earned off it. Gains here mean the difference between the sale price and indexed cost of property. Indexed values are taken from the records maintained from 1981-82 onwards.
- In case of property inherited, the cost considered is the cost of the property to the person from whom it is inherited.
- Selling the property within 3 years would attract short term capital gains tax amounting to 30% of gains.
- NRI can get exemption from this tax by reinvesting the capital gains earned in another property (Section 54 of IT Act) or in tax-exempt bonds (Section 54EC).
- The application for exemption certificate can be made only in that area of jurisdiction where PAN is applied from.
- Exemption is granted on the basis of the proofs of investments produced. In case of property, allotment letter or payment receipt is to be produced and in case of investing in bonds valid under section 54EC, one would be required to submit affidavit. Normally, buyers hold the last installment of the payment till they receive the investment proofs from the seller.
- Section 54F of Income Tax Act states that an NRI can also enjoy tax exemption from tax on capital gains if the residential plot retained for 3 years, at least, is sold and a residential house is purchased within two years from the date of sale. In case he chooses to construct a house by using the proceedings from the sale, the exemption can be enjoyed if it is done within 3 years from the date of sale. This exemption is applicable only if the seller does not have any other house other than the one being sold. Also the house bought/constructed for claiming exemption is to be retained for 3 years at least. The seller should also not buy any additional house within 2 years, to be eligible for exemption.
So, the sellers with residential status of NRI seeking NRI inherited property should stick to all the guidelines mentioned above to enjoy the benefits from the inherited property in India. These guidelines help avoid legal hassles and enable carrying out the process speedily yet cautiously.