Applicability of TDS on Sale of Property by NRI

Whenever any property is purchased/sold, TDS is required to be deducted. The buyer when paying the amount to the seller will deduct some amount (technically called as TDS) and pay the balance to the seller. This amount which has been deducted by the buyer would then be required to be deposited with the Income Tax Department by the buyer.

The amount to be deducted would be depend on the residential status of the seller. In case the seller is a resident indian – the amount of TDS to be deducted would be 1% of Sale Price whereas in case the seller is a NRI – the amount of TDS to be deducted would depend on the quantum of money received by the seller.

The residential status of the buyer would not be considered and only the residential status of the seller would be considered for computing the amount of TDS to be deducted.

The manner and amount of deduction of TDS in case the seller is a Resident Indian has been explained in detail in here – 

The manner and amount of deduction of TDS in case the seller is a NRI has been explained in detail below.

TDS Rates for NRI Property Sales

When an NRI sells property in India, the Tax Deducted at Source (TDS) must be applied based on the nature of the capital gain — whether it's long-term or short-term. Below is a detailed explanation of the applicable TDS rates:

TDS Rate Table for Long Term Capital Gains (LTCG) on NRI Property Sales

*Note: The maximum surcharge has been capped at 15% post-Budget 2022, making the highest applicable TDS rate 23.92% regardless of property values exceeding ₹1 Crore.

Key Insights

Surcharge and Cess: In addition to the base LTCG tax of 20%, a surcharge (if applicable) and a Health & Education Cess of 4% are levied to determine the effective TDS rate.

Surcharge Adjustments: The 2022 Budget capped the maximum surcharge at 15%, standardizing the TDS rate to a maximum of 23.92% for property sales exceeding ₹1 Crore.

Short Term Capital Gains (STCG): For properties held for less than 2 years, surcharge and cess are added to the tax rate according to income tax slabs, akin to the LTCG calculation.

Universal TDS Deduction: TDS on property sales to NRIs must be deducted for any transaction value, including properties valued below ₹50 Lakhs, and deposited with the Income Tax Department by the buyer.

This table and insights aim to clarify the TDS implications for NRIs selling property in India, taking into account the latest tax regulations and surcharge adjustments.

Basis for TDS Deduction on NRI Property Sales

TDS for NRIs selling property is governed by Section 195, focusing primarily on capital gains rather than the sale price. The computation of capital gains, however, isn't the seller's responsibility but must be determined by an Income Tax Officer.

Sellers are advised to submit Form 13 to the Income Tax Department, requesting an assessment of their capital gains. Given the complexity of this process, seeking help from a chartered accountant is advisable. Upon evaluation, the department may issue a certificate authorizing either no deduction or a reduced TDS rate based on the capital gains incurred. This certificate must be provided to the buyer to adjust the TDS deduction accordingly.

Without this certificate, TDS defaults to being deducted from the total sale price, making it crucial for the seller to obtain it. Moreover, it's recommended to document TDS details within the property sale agreement, though the property registrar's role doesn't extend to verifying TDS compliance.

Should TDS be inaccurately or insufficiently deducted, the Income Tax Department's recourse will be against the buyer for the shortfall.

Compliance for TDS Payment, Returns, and TAN Requirements

Purchasing property from an NRI necessitates several compliances, including the need for a TAN (Tax Deduction and Collection Account Number) for TDS deduction, not required when buying from resident Indians. If multiple buyers are involved, each must obtain a TAN.

Deducted TDS must be deposited with the Income Tax Department by the 7th of the following month after deduction, using Challan No./ITNS 281. Subsequently, a TDS return, Form 27Q, must be filed for each quarter of deduction, within 31 days post-quarter. After filing, the buyer should issue Form 16A to the seller as proof of TDS deposit.

Identifying the Seller's Residential Status

Determining if a seller is a resident or non-resident in India is pivotal, as it influences the TDS rate. This determination is based on the number of days spent in India, not citizenship or possession of identification like Aadhaar or PAN cards.

The Income Tax Department provides resources, including a Residential Status calculator, to assist in these determinations, emphasizing that income earned outside India is taxable for residents but not for NRIs.

Guidelines for Sellers and Buyers

Sellers should aim to secure a capital gains computation certificate from the Income Tax Department to minimize TDS deduction. Failing which, TDS will be deducted on the total sale value, potentially leading to an excess deduction.

Sellers should also consider reinvestment options within India to reduce capital gains tax liability and can apply for a refund of over-deducted TDS at the year's end. Co-owners must each file Form 13 to benefit from reduced TDS rates, applicable to both NRIs and OCI cardholders.

Buyers are tasked with timely TDS deduction and deposit, filing TDS returns, issuing Form 16A to the seller, and adhering to the strict timelines for deposit and return filing to avoid penalties and interest for delays. For properties purchased with a home loan, TDS deductions should align with payments to the seller, not EMI payments to the bank, including for advance payments before any lower TDS certificate issuance.

Avoiding Double Taxation for NRIs on Property Sales Across Borders

Double taxation often occurs when NRIs sell property in India while residing in another country, such as the USA, where taxes are imposed on global income. To prevent this, India has Double Taxation Avoidance Agreements (DTAAs) with numerous countries. These agreements enable NRIs to claim a tax credit for taxes paid in India, thereby reducing their tax obligation in their country of residence. For successful claims, NRIs must properly disclose their property sale transactions and taxes paid in India on their foreign tax returns, using specific forms like Section D of Form 1040 in the US, to avail of the tax credit as per the DTAA.

Repatriating Sale Proceeds for NRIs

NRIs looking to transfer their property sale proceeds outside India must complete Form 15CA and Form 15CB, available through the Indian Income Tax website. While Form 15CA can be filled out by the NRI or their Chartered Accountant, Form 15CB requires a Chartered Accountant's certification. These forms, which detail the source of funds and affirm that all due taxes have been paid in India, must be submitted to the bank to repatriate funds. The Reserve Bank of India (RBI) allows NRIs to repatriate up to $1 million USD per calendar year, subject to these conditions.

Minimizing TDS for NRIs on Property Sales

NRIs can apply for a Certificate for Nil or Lower Deduction of TDS by submitting Form 13 to the Indian Income Tax Department. This certificate significantly reduces the TDS burden on property sales. Given the complexity of the application process, it's common for NRIs to engage a Chartered Accountant to navigate this task efficiently. This strategic move is widely adopted by NRIs to lessen their tax liabilities from property transactions in India.

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