TDS on Sale of Property by NRI/Purchase from NRI
Table of Contents
TDS on Sale of Property by NRI/Purchase of Property from NRI
Brief Discussion of the TDS on Sale of Property by NRI/Purchase of Property from NRI and How NRI can lower the TDS on Property Sale.
TDS should be deducted whenever a property is purchased or sold. At the time of making payment to the seller, the buyer will be required to deduct a certain amount (officially known as TDS (Tax Deducted at Source) and pay the remaining amount to the seller. The buyer would then be required to deposit the amount deducted with the Income Tax Department within the time limit prescribed under the Income Tax Act.
Amount required to be deducted will be determined on the basis of seller’s residential status. If the seller is a resident Indian and the sale consideration is equal to 50 lakh or more then TDS @ 1% of the sale consideration should be deducted, whereas if the seller is a non-resident Indian, the amount of TDS to be deducted would depend on the amount of money received by the seller.
That Means, for the Purpose of Determining the amount of TDS required to deducted buyer’s residential status would not be taken into account, only the seller’s residential status would be taken into account.
What is the TDS Rate on Sale of Property by Non-Resident Indians?
Rate of TDS required to deducted on Sale of Property by Non-Resident Indians is mentioned below: –
Surcharge and Cess would be added to the above amount though too.
As a consequence, in the case of Long-Term Capital Gains, the effective rate of TDS on property sales by NRI would be as follows:
Particulars | Sale Price of Property (In Rs.) | ||||
Less Than 50 Lakhs | 50 lakhs to 1 Crore | 1 Crore to 2 Crore | 2 Crore to 5 crore | Above 5 Crores | |
Long Term Capital Gains | 20% | 20% | 20% | 20% | 20% |
Add: Surcharge | Nil | 10% on above | 15% on above | 25% on above | 37% on above |
Add: Health and Education cess | 4% of above | 4% of above | 4% of above | 4% of above | 4% of above |
Applicable TDS Rate (Incl. Surcharge and Cess) | 20.8% | 22.88% | 23.92% | 26% | 28.5% |
This Surcharge and Cess would be applied to the appropriate Tax Rate as per the Income Tax Slabs in the same manner as mentioned above for Long Term Capital Gains in the case of Short-Term Capital Gains (i.e., if the Property has been held for less than 2 years by the seller).
Points to keep in mind at the time of property purchased from NRI
- The TDS required to be deducted on every payment made to the seller for the acquisition of a property. Even if it is an advance payment TDS required to be deducted.
- TDS is needed to be deducted on property purchased from an NRI, regardless of the transaction value of the property. This TDS must be deducted even if the property’s worth is less than Rs. 50 lakhs.
- It is necessary for a buyer to obtain a TAN (Tax Deduction and Collection Account Number) in order to acquire a property from an NRI.
- TDS deducted from the property must be deposited with the income tax department within seven days after the end of the month in which TDS was deducted.
What would be the Amount on which TDS required to deducted?
TDS is needed to be deducted on Sale of Property by NRI under Section 195 of Income Tax Act. Calculation for the amount of capital gains on which the TDS required to deducted cannot be determined by the Seller, it must be done by the Income Tax Officer.
For this, the seller shall require to submit application in Form 13 to the Income Tax Department, requesting him to compute his capital gains. The method for completing this form is a little technical, therefore the seller should hire a chartered accountant to help them file an application with the Income Tax Department.
There are Several documents which is required to submitted along with the application in Form 13 like Date of Purchase, Purchase Price, any expenses incurred on Renovation/ Construction etc.
Income Tax Officer will compute the capital gains of the seller on the basis of the document submitted and if he is satisfied, he will issue a certificate for Nil/lower deduction of TDS depending on the capital gains arising on the sale of property.
The seller must provide this certificate to the buyer, who will deduct TDS according to the rates listed on the income tax certificate.
If the seller fails to get this certificate from the Income Tax Department, the TDS should be deducted on the total sale price of the Property rather than the capital gains arising out of it. As a result, obtaining this certificate from the Income Tax Officer is very critical for the seller.
It is recommended that the details for TDS deduction be included in the Agreement of Property Sale. It should also be noted that the TDS Deduction is not the duty of the Property Registrar. Even if the TDS is not deducted or is deducted incorrectly, the Registrar will record the Sale Agreement.
If the TDS is erroneously deducted or not deducted at all, the Income Tax Department would seek the buyer of the property to collect the TDS. The Income Tax Department will collect the TDS from the buyer if the buyer forgot to deduct it or deducted less.
Compliances Related to TDS Payment, TDS Return & TAN No.
When buying a Property from an NRI, there are a lot of regulations to adhere to. Firstly, the buyer must obtain a TAN number in order to deduct TDS. If the property is acquired from a Resident Indian, a TAN number is not necessary, but if it is purchased from NRI it is mandatory.
A TAN number i.e., Tax Deduction and Collection Account Number is distinct from a PAN number. The buyer is obliged to hold the TAN number, not the seller. If the buyer does not have a TAN number, he should apply for same before deduction of TDS. It should also be noted that in case there are two purchasers, each of them will be needed to apply for a TAN number.
The buyer must submit the TDS with the Income Tax Department within 7 days after the end of the month in which the TDS was deducted. For example, if TDS is deducted in June, it must be remitted with the Income Tax Department on or before July 7th.
This TDS must be submitted with Challan No./ ITNS 281 and is available for deposit both online and at various bank locations. TDS can be submitted online at https://onlineservices.tin.egov-nsdl.com/etaxnew/PopServlet?rKey=-1718820163
Following the TDS deposit, the buyer must submit a TDS Return. This TDS Return must be submitted in Form 27Q, and it must be submitted separately for each quarter in which TDS has been deducted. This TDS Return must be deposited within 31 days after the end of the quarter from which the TDS was deducted.
The buyer must additionally provide Form 16A to the seller of the property after depositing TDS and submitting TDS Return.
How can one determine if a seller is a resident or a non-resident?
The rate of TDS required to deducted depends on whether the seller is a Resident in India or an NRI in India for income tax purpose, hence determining the seller’s residential status is critical when making a property transaction with an NRI.
It is based on the number of days he or she spends in India whether considered to be a Seller Resident in India or a Non-Resident in India.
The seller’s residence status may also be readily determined using the Income Tax Department’s Residential Status Calculator, which can be found at https://www.incometaxindia.gov.in/Pages/tools/residential-status-calculator.aspx
Points to keep in mind while determining the residential status of seller
- The citizenship of the nation has no relevance on whether the seller is an Indian resident or a non-resident. Even if a person is an Indian citizen and lives in another country, he would be classified as a Non-Resident for Income Tax reasons. The Income Tax Act not mention anywhere of citizenship; it just mentions the number of days spent in India.
- Seller might be considered as Non-Resident in India even if he holds an Indian Aadhaar Card and a PAN Card. The Residential Status is decided only by the number of days spent in India, not by the presence of an Aadhaar Card or a PAN Card.
- The type of bank account used by the seller has no bearing on the seller’s residential status. Even if a person’s resident savings account has not been transferred to an NRI bank account, he might still be regarded a non-resident.
What if the Seller discovers that he is a Resident in India?
The key advantage of being a Non-Resident is that income generated outside of India is not taxed in India. However, a Resident’s foreign income generated outside of India is taxed in India.
This is the major reason why people who live outside of India desire to keep their NRI status because if they become residents in India, they would have to pay tax on their income generated outside of India as well.
Things to be taken care of by the seller
- Try to Obtain a Certificate from the Income Tax Department for Capital Gains Computation, which would reduce the amount of TDS to be deducted.
- If the Seller is unable to get the Certificate, TDS will be deducted on the Sale Value, resulting in an overpayment of TDS.
- The seller should get Form 16A from the buyer in addition to the Property Registration Documents.
- In case the seller wants to reinvest his Capital Gains in India, he might reduce his Capital Gains, resulting in lower TDS and tax liability.
- If the seller does not get this certificate, he may request a refund of the excess TDS deducted at the end of the year.
- In case there are two sellers (i.e., co-owners), each of them must submit Form 13 individually in order to reduce TDS rates.
- The reduced TDS Certificate rules apply to both NRIs and OCI Card holders, and OCI Card holders can take advantage of the benefit in the same way.
Things to be taken care of by the Buyer
- TDS should be deducted at the time of each payment, not at the time of property registration.
- The TDS thus deducted must be submitted with the Income Tax Department according to the TDS deposit schedule.
- TDS Returns must be filed with the Income Tax Department according to the TDS Return filing schedule.
- After submitting the TDS Return, the buyer must also issue Form 16A to the seller. A TDS Certificate, or Form 16A, certifies that the buyer has deposited the TDS with the seller.
- In the case that TDS is not paid on time, interest will be charged at a rate of 1%/1.5 percent per month.
- There will be a penalty of Rs. 200 each day if the TDS Return is not filed on time. A penalty of up to Rs. 1 lakh may be imposed by the Income Tax Officer.
- In the case of a home loan, TDS is deducted when the amount is paid to seller, not when the EMI is paid to the bank.
- TDS will also be deducted on advance payments in accordance with the aforementioned schedule. TDS will be deducted in accordance with the aforesaid schedule on all payments made prior to the issue of the Lower TDS Certificate.
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