Q.855 NRI selling property to NRI

| Property payment to NRE

Account

Question: Hi I would appreciate if you could clarify the following. If both the seller and the buyer are NRI. And the buyer transfers money to the sellers NRE(not NRO) account. Is the seller(or buyer) still liable to pay long term capital gains at 20 % based on your calculation. If there is LTCG then 1)I wonder what necessary checks and controls are in place by the Government of India that this is followed since there are no limits on repatriation from NRE accounts and no questions asked for repatriation of funds to another country as per the Reserve Bank of India. There are formalities to be completed and proofs needed only when repatriation is done from NRO accounts after sale of property by NRI but not for NRE accounts. 2) What are the implications of not paying capital gains if they are applicable in the above scenario for both the seller and the buyer in India as well as abroad. Regards Sheriyar [February 17, 2016] Answer: The liability to pay capital gains would remain. Assuming that the registration is done in India and payment mode not questioned by the Registrar during the registration process. If the buyer of your property and you both being non- residents get payment in your NRE account. Then as you suggest repatriation can be done from NRE account. The problem here would be: While the seller and even the buyer may move abroad. The property will remain in India Liability to pay capital gains by seller will remain. In case the transaction is discovered by the authorities, penalties may also be applied. The buyer is the one who is responsible to deduct the TDS from the payment he makes to the seller. As long as the property is in India, as soon as the authorities become aware of the sale transaction they may want to collect from the buyer. Needless to say payment mode would be in contravention of the rules Depending on the account holder’s profile, the transfer of a large amount into an NRE account can also raise a red flag and source of funds questioned. Sub Registrar at time of registration these days ask for PAN Card. While 1% TDS applies for transactions above Rs. 50 Lakh for residents. In case PAN is not provided by the seller, then the rules call for a deduction of 20% of the stipulated amount. Finally! Form 26QB known as TDS Challan is used to make TDS payments when property sold in India. A print out of this Form confirming payment of TDS will be required at time of registration of the property. Sub- Registrar is obliged to verify proof of TDS payment. To view sample of Form 26QB Click HERE As for checks and balances by the government of India regards to property sale, the only thing I am aware of is that several years ago there was a requirement whereby in all cases where property value exceeded Rupees 30 lakh the transfer a list of such property details was sent annually to the tax authorities. However, most registrars at that time operated on manual system and the system may have not been that strict. These days with records mostly computerized, how much information is shared between property registration and tax authorities would be speculation.

TDS Procedure when Property Sold in

India by Non-Resident (NRI)

For the benefit of readers of this article. Information is provided for NRIs regarding Tax Deduction at Source (TDS) on property sold in India by non-residents. Property where amount is more than Rupees 50 Lakh under current rules (effective June 1, 2013) seller is liable to pay 1% TDS makes TDS applicable. TDS is required to be deducted on the sale of all types of property in India other than agricultural land*. THE BUYER DEDUCTS the TDS from the negotiated sale price and is responsible to submit the TDS to the authorities. [*This TDS does apply to agricultural land within an 8-km radius of a municipal area] While for residents the TDS on property is 1%. Rules are different when a non-resident sells their property. When a property is sold in India usually there is a capital gain. This capital gain could be short or long term. Non-residents who sell their property and have long term capital, then TDS must be deducted @ 20 per cent. If the sale results in a short term gain if property was held for less than 3 years, then tax is payable as per the slab rate of income tax applicable.