The applicability of TDS on the sale of property by an NRI in India is thoroughly covered in this article. The following subjects have been thoroughly covered in this article:
When an NRI (Non-Resident Indian) sells a property in India, the buyer is obligated to deduct Tax Deducted at Source (TDS) under Section 195 of the Income Tax Act, 1961. This guide aims to provide a comprehensive understanding of the TDS process for property sale by NRIs, covering various aspects such as applicable rates, compliance requirements, and tax implications.
Key Considerations for TDS Deduction on NRI Property Sale
- TDS Rate: The TDS rate applicable to the sale of a property by an NRI depends on the nature of the capital gains:
- Long-term capital gains (property held for more than 2 years): 20%
- Short-term capital gains (property held for less than 2 years): Income tax slab rates applicable to the NRI
- Surcharge and Cess: Surcharge and cess are levied on the above-mentioned TDS rates, resulting in an effective TDS rate of:
- Long-term capital gains:
- Property sale price less than Rs. 50 lakhs: 20.8%
- Property sale price between Rs. 50 lakhs and Rs. 1 crore: 22.88%
- Property sale price above Rs. 1 crore: 23.92%
- Short-term capital gains: Surcharge and cess are added to the applicable income tax slab rates.
- Long-term capital gains:
- Advance Payment: TDS needs to be deducted on any advance payment made for the property purchase.
- Residential Status of the Seller: The residential status of the seller (NRI or resident Indian) determines the applicable TDS rate.
- Lower TDS Certificate: The seller can obtain a certificate from the Income Tax Department for a lower TDS deduction based on their capital gains calculation.
- Compliance Requirements: The buyer must obtain a TAN (Tax Deduction and Collection Account Number), deposit the deducted TDS with the Income Tax Department, and file the TDS return (Form 27Q).
- Form 16A: The buyer must provide Form 16A to the seller after filing the TDS return.
Steps for TDS Deduction on NRI Property Sale
- Determine the Seller’s Residential Status: This can be done by using the Income Tax Department’s residential status calculator.
- Calculate the Applicable TDS Rate: Based on the nature of the capital gains and the seller’s residential status.
- Deduct TDS at the Time of Payment: TDS should be deducted from each payment made to the seller, including advance payments.
- Deposit TDS with the Income Tax Department: The deducted TDS must be deposited within 7 days from the end of the month in which the TDS was deducted.
- File TDS Return (Form 27Q): The TDS return must be filed quarterly, within 31 days from the end of the quarter in which the TDS was deducted.
- Provide Form 16A to the Seller: The buyer must provide Form 16A to the seller after filing the TDS return.
Additional Information for Buyers
- TAN Requirement: A TAN is mandatory for buyers purchasing property from NRIs.
- Late Payment/Filing Penalties: Interest and penalties apply for late payment of TDS or late filing of the TDS return.
- Double Taxation Avoidance Agreements: India has agreements with various countries to avoid double taxation on property sale income.
- Money Repatriation: NRIs can repatriate the sale proceeds outside India by submitting Form 15CA and Form 15CB to their bank.
Understanding the TDS process for property sale by NRIs is crucial for buyers to ensure compliance with tax regulations. By following the steps outlined above and staying informed about the latest regulations, buyers can avoid potential penalties and ensure a smooth transaction.
FAQs
1. What is the purpose of TDS deduction on NRI property sale?
TDS deduction aims to collect tax at source from NRIs selling property in India, ensuring timely tax collection and reducing the risk of tax evasion.
2. How can I obtain a TAN for TDS deduction?
You can apply for a TAN online through the Income Tax Department’s website.
3. What are the consequences of not deducting TDS on NRI property sale?
Failure to deduct TDS can result in penalties and interest charges for the buyer.
4. Can I claim a refund of excess TDS deducted?
Yes, you can file a refund claim with the Income Tax Department if the TDS deducted exceeds the actual tax liability.
5. How can I avoid double taxation on property sale income?
If India has a double taxation avoidance agreement with the NRI’s country of residence, the NRI can claim tax credit in their home country for taxes paid in India.
6. What is the procedure for money repatriation for NRIs?
NRIs can submit Form 15CA and Form 15CB to their bank to repatriate the sale proceeds outside India.
7. Where can I find more information about TDS on NRI property sale?
The Income Tax Department’s website and various online resources provide detailed information on TDS regulations and procedures.
8. Is it advisable to consult a tax advisor for assistance with TDS compliance?
Consulting a tax advisor is recommended to ensure accurate calculation and timely compliance with TDS regulations.
9. What are the recent changes in TDS regulations for NRI property sale?
The recent changes include the introduction of a lower TDS certificate for NRIs and the increase in the maximum surcharge rate.
10. How can I stay updated on the latest TDS regulations?
Subscribing to tax updates from the Income Tax Department and consulting reliable online resources can help you stay informed about the latest regulations.
Disclaimer: The information provided in this guide is for general knowledge and informational purposes only. It is not intended to be a substitute for professional tax advice. It is always recommended to consult with a qualified tax advisor for specific guidance and assistance.
Applicability of TDS on Sale of Property by NRI
Anytime a property is bought or sold, TDS must be subtracted. When making a payment to the seller, the buyer will deduct a certain amount (referred to as TDS) and then pay the seller the remaining amount. The buyer would then need to deposit the amount that was withheld by them with the Income Tax Department.
The amount to be subtracted would vary based on the seller’s residential status. The amount of TDS to be deducted in the event that the seller is a resident Indian (20%) E2%80%93%, while in the event that the seller is a Non-resident Indian (20%) E2%80%93%, the amount of TDS to be deducted would determine the amount of money received by the seller.
For the purpose of determining the amount of TDS to be deducted, the residential status of the seller would be taken into account and not that of the buyer.
The procedure and amount of TDS deduction in the event that the seller is an Indian resident have been explained in detail here: E2%80%93%20TDS%20@%201%%20on%20sale%20of%20property%20by%20Resident%20Indian
Below is a detailed explanation of the process and amount of TDS deduction in the event that the seller is an NRI.
Amount on which the TDS is required to be deducted
Under Section 195, the TDS on real estate sales by non-resident individuals must be withheld; ideally, this deduction should occur on capital gains. Nonetheless, the Income Tax Officer should calculate capital gains instead of the Seller.
The seller will submit a Form 13 application to the Income Tax Department, asking them to calculate his capital gains. The seller can hire a chartered accountant to help with the somewhat complicated process of filing this form with the Income Tax Department.
Depending on the capital gains from the sale of the property, the Income Tax Department will calculate the seller’s capital gains and issue a certificate for a lower or zero TDS deduction.
This certificate must be provided by the seller to the buyer, who will then deduct TDS at the rates specified in the income tax certificate.
The TDS should be subtracted from the total sale price rather than the capital gains if the seller does not receive this certificate from the Income Tax Department. It is crucial that the seller receive this certificate from the Income Tax Officer as a result.
It is recommended that the Property Sale Agreement include information about the TDS deducted. It should be mentioned that the Property Registrar is not in charge of making sure the TDS Deduction is made. Even in cases where TDS is not deducted or is incorrectly deducted, the Registrar will still register the Sale Agreement.
The Income Tax Department won’t take any action against the seller if the TDS is incorrectly withheld or not withheld; instead, it will seize the property buyer and require them to deposit the TDS. The Income Tax Department will collect the TDS from the buyer if they failed to deduct the TDS or deducted less than the required amount.
(PS: By using this link, you can hire us to file an application for a lower TDS deduction. We also assist NRIs in filing Form 13 to lower the TDS Rates. charteredclub. com/services/nri-tds-certificate-lower-nil-deduction/).