When NRIs invest in Indian property using foreign currency earnings, the rupee's long-term depreciation can make property appear more affordable initially. According to Mint reports, an NRI who invested ₹22.6 crore in a premium property between 2015-2020 and sold it for ₹60 crore today would appear to have generated a gain of about ₹54.4 crore after costs. However, when adjusted for currency movements, the picture changes significantly. As explained by Sidhant Agarwal, chartered accountant and co-founder of India for NRI, the currency-adjusted internal rate of return works out to about 10.7% in rupee terms but only around 6.5% in US dollar terms over 11 years. Indian capital gains tax is calculated entirely in rupees using the property's purchase and sale value, without compensating investors for currency depreciation losses. This observation is relevant only for those NRIs who intend to use their wealth in US dollars. In case they plan to spend or reinvest the proceeds in India, rupee returns come into the picture.
The choice between NRE/FCNR and NRO accounts significantly impacts property sale proceeds repatriation. According to Mint reports, if property is purchased using NRE or FCNR funds, the original investment can be repatriated in full upon sale, with residential properties limited to two properties before the $1 million annual repatriation limit applies. Commercial properties are not subject to this restriction. However, if purchased using NRO funds, repatriation is capped at $1 million per financial year regardless of property number, with any excess requiring prior RBI approval through authorized dealer banks. CA Ajay R. Vaswani of ARAS and Company noted that the funding source only protects principal exit speed, as appreciation still falls within the repatriation limit. Under the Foreign Exchange Management Act (FEMA), the proceeds from selling property in India must be credited to the seller's NRO account from the buyer's bank account. CA Vaswani warned against violation of FEMA rules, stating that if both buyer and seller are NRIs, they cannot settle the property transaction directly through their NRE or any foreign bank accounts, as doing so would violate FEMA rules and could attract significant penalties.
TDS compliance is the buyer's responsibility but sellers have strong interest in ensuring proper deduction. As reported by Mint, if the seller is a resident Indian, the buyer deducts 1% TDS for properties above ₹50 lakh. For NRI sellers, the buyer must deduct 12.5% TDS plus applicable surcharge and cess under the new capital gains regime for long-term gains. Failure to deduct TDS attracts 1% per month interest from the due date until deduction, with 1.5% per month interest if deducted but not deposited. CA Vaswani emphasized that sellers should ensure buyers deduct applicable TDS, as failure to do so may result in self-assessment tax and interest payments. The seller should ensure that the buyer deducts the applicable TDS. If the TDS is not deducted, the seller may not receive credit for it while filing the income tax return. The seller may also have to pay self-assessment tax, along with interest, as the tax department could treat the shortfall as a failure to pay advance tax.
Many NRIs incorrectly assume they must travel to India to complete property transactions, but properly drafted power of attorney can allow trusted relatives to handle formalities. According to Mint reports, embassy attestation alone is insufficient - the POA must be registered at the local sub-registrar's office in India to be legally binding. Many NRIs complete only overseas attestation and fail to register the document, discovering years later it has no legal validity. Common documentation mistakes include not having a Permanent Account Number (PAN), which is essential for correct TDS deduction, with TDS deducted at 20% plus surcharge and cess without PAN. Other essential documents include the original sale deed, legal heir certificates for inherited property, and freehold conversion deeds where applicable. NRI families often incur unnecessary costs on stamp duty by executing sale deeds when transferring property among close relatives. Sidhant Agarwal explained that they frequently meet NRIs who have paid full stamp duty and other transaction costs while transferring property to a sibling or child, even though a sale deed wasn't required. Gift deeds, relinquishment deeds and family settlement deeds are specifically meant for such situations, but many people learn about them only after incurring the additional expense.
