Higher rate of TDS on sale of immovable property owned by NRI in India

1. Applicability of TDS on Sale of Property by NRI

After the sale or purchase of property, a TDS deduction has to be made. The buyer deducts the TDS and then pays the balance when making the payment. The amount deducted has to be paid to the Income-tax department. When the seller is an Indian resident, TDS is usually one percent of the sale price. If the seller is a non-resident Indian, then TDS deducted is based on the quantum amount that the seller gets. This is to say that the TDS is calculated based on the seller’s residential status. 

2. What is the Rate of TDS on the Sale of Property by NRI?

Various rates are set to determine the TDS. For long-term capital gains, the rate is 20% if the property has been held for over 2 years. If it is short-term capital gains, then the seller’s income tax rates are applicable if the property has been held for not more than two years. For these amounts, surcharge are also levied. 

3. Amount on which TDS is required to be deducted

TDS deduction is a requirement by law falling under section 195. The deduction should be based on capital gains. Capital gains computations are done by an officer from the income tax department, and the application has to be made by the seller. After computation, the income tax department has to issue a certificate. 

4. TDS Payment, TDS Return & TAN No.

When a property is being purchased from a non-resident Indian, many compliances have to be met. One needs to have a TAN No for TDS deduction. However, the TAN No is not needed for resident Indians. The buyer needs to have this number. When TDS is deducted, it should get to the income tax department in 7 days from the month-end, when the deduction is made. Once the deposit has been made, the buyer must give the seller Form 16A. 

5. How to Determine whether Seller is Resident or Non-Resident in India

Residential status is based on the number of days a person usually spends in India. A residential status calculator can be used to determine this. Their citizenship doesn’t matter. For income tax purposes, if a person is an Indian citizen but lives abroad, he is non-resident because the Tax act mentions days, not citizenship. Even with the PAN and Aadhaar card, you may still be a non-resident. The banned account a seller holds also has no impact on their residential status.

6. Things to be taken care of by the Seller

They include a certificate from the relevant body to facilitate capital gain computation. Other documents like the date of purchase, purchase price, and expenses like construction and renovation need to be submitted together with form 13. The seller has to get form 16A. If there are two buyers involved, both need to submit form 13.

7. Things to be taken care of by the Buyer

The buyer must deduct TDS on each payment and deposit it to the income tax department. The buyer has to give the seller form 16A once the return has been made. There are penalties that the buyer could pay for being late with payments. 

8. How to avoid Double Tax on sale of Property by NRI Seller in 2 Countries

Some countries levy property sales regardless of location. This allows tax credits to reduce liability in this other country. There are double taxation avoidance agreements made in India and some other countries to avoid this. 

9. Repatriation of Money outside India by NRI

If money for property sale needs to be repatriated outside India, form 15CA and form 15CB have to be submitted by the NRI. The forms should be submitted to the bank after being generated from the income tax website. Disclosures should be made about the funds and tax declarations. 

10. Reduce your TDS Liability by filing an application in Form 13

Form 13 needs to be filled if one needs a TDS reduction for NRI property sale. One may have to get a chartered accountant to help with this as it can be very complicated. Indiabiz assist is the best to help in this area and ensure that all things are taken care of and that you are fully compliant.