FATCA prompting US NRIs to sell property in India

MUMBAI|NEW DELHI: Many US-based non-resident Indians are considering selling their property in India – even at a discount – amid confusion and fear that a new information-sharing protocol may bring their assets, bank accounts, mutual funds and capital market investments in India under the scanner of US tax authorities.

India and the US recently agreed to implement the US Foreign Account Tax Compliance Act ( FATCA), a law aimed at ensuring that tax is paid on income generated from wealth parked overseas. Under the agreement, they would share information about citizens with assets in each other’s countries.

Unlike the case of mutual funds and bank accounts, it isn’t as easy for the Indian government to identify property held by NRIs in India. However, the NRIs anticipate that as systems become more robust, details of their assets will be shared with US authorities automatically and they want to act before that happens. Gurgaon-based online property portal BigDeal in has received several enquiries over the past two months from NRI clients based in the US, chief executive officer Ashwin Chawwla said. “Some of these people are seeking more clarity on the issue. They are confused about what’s happening and how to deal with it,” said Chawwla.

He said others have asked him to dispose of their property in India in a hurry, even if it means selling at a discount, as the law is still not clear. Many of his clients had invested in property over the past decade, when the property market was at its peak in India, especially in areas such as Gurgaon. Jignesh Shah, an engineer who works in Silicon Valley, bought a bungalow in Surat about three years ago as a long-term investment.

Now he wants to sell the property immediately as he intends to stay clear of the regulation. While some US-based NRIs are transferring their property to relatives or acquaintances before selling them, others are going ahead with an outright sale. In both cases,the expectation is that the property will be sold before it comes under scrutiny.

“If the property is transferred and then sold, then the relative or acquaintance can remit back the money to the US citizen. He can send around $2,500,000 (Rs 16.6 crore) per annum. In cases where the property is not transferred, the cash could be kept in a separate account or tax paid on the amount received through the cheque,” said a tax adviser who is helping NRIs with property in India.

Currently there are two schemes operational in the US for NRIs to declare their wealth back home in India. Under the first scheme, there is no penalty for those who declare they were unaware of the liability, although tax for income generated over the past three years has to be paid. “For taxpayers whose non-compliance is non-wilful and without any intent of tax evasion, the IRS has a limited-scope amnesty programme which allows taxpayers to come back into compliance without any penalties,” said Lloyd Pinto, director at Grant Thornton India.

In the other scheme, back taxes for eight years can be paid along with interest as well as a 27.5% penalty to compensate for non-compliance.

Real estate experts said NRIs are not only selling their property in India but also avoiding investing in the country as it may lead to tax complications in the future. In addition, Indian banks are reluctant to open accounts that will help US-based NRIs to invest in India because it will increase their reporting obligations.