LOWER DEDUCTION CERTIFICATES FOR NRIS

TDS on Sale of Property by NRI

Whenever any property is purchased/sold, TDS is required to be deducted by the buyer of the property.

The residential status of seller plays an important role while calculating the amount to be deducted. If the seller is a resident Indian – the amount of TDS to be deducted would be 1% of Sale Price; whereas in case of an NRI – the amount of TDS to be deducted would depend on the sale value of the property.

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

Rate of TDS on Sale of Property by NRI

TDS on Sale of Property by NRI is to be deducted as follows:-

Surcharge and Cess would also be levied on the above amount.

Therefore, the effective rate of TDS on sale of property by NRI in case of Long Term Capital Gains would be as follows:

In the case of Short Term Capital Gains, Surcharge and Cess would be added to the applicable Tax Rate as per the Income Tax Slabs in the same manner as explained above for Long Term Capital Gains.

TDS is required to be deducted whenever any payment is made to the NRI for purchase of property. Even if any advance is being paid for purchase of property – TDS is required to be deducted.

TDS is required to be deposited by the buyer with the Income Tax Department stating that this is the TDS which he has deducted from the payment made to NRI.

Moreover, this TDS on purchase of Property from NRI is required to be deducted irrespective of the Transaction Value of the Property. Even if the value of property is less than Rs. 50 Lakhs – this TDS is required to be deducted.

Amount on which the TDS is required to be deducted

TDS on sale of property by NRI is required to be deducted under Section 195 and is ideally required to be deducted on the Capital Gains. However, this computation of Capital Gains cannot be done by the Seller himself and should be done by the Income Tax Officer.

An application in Form 13 shall be filed with the Income Tax Department as a request to compute Capital Gains and issue a certificate for Nil/ Lower deduction of TDS depending on the capital gains arising on the sale of property.  

The seller is required to give this certificate to the buyer and the buyer will deduct the TDS as per the rates mentioned in the income tax certificate.

In case this certificate is not obtained by the seller from the Income Tax Department, the TDS should be deducted on the Total Sale Price and not on the Capital Gains. Therefore, it is very important for the seller to obtain this certificate from the Income Tax Officer.

It is advisable that the details of the TDS deducted shall be mentioned in Property Sale Agreement

Moreover, it is the responsibility of the buyer to deduct TDS appropriately and deposit the same with the Government.

TDS Payment, TDS Return and TAN No.

Following are the prerequisites while buying a property from a NRI:-

1. Buyer should have a TAN No. for deduction of TDS.

2. TDS so deducted shall be deposited with the Income Tax Department within 7 days from the end of the month in which the TDS has been deducted. TDS is required to be deposited along with Challan No./ ITNS 281 and can be deposited online as well as through various bank branches.

3. After the deposit of TDS, the buyer is required to furnish a TDS Return in Form 27Q and is required to be furnished separately for each quarter in which the TDS has been deducted. TDS Return is required to be filed within 31 days from the end of the quarter in which the TDS has been deducted.

4. The buyer is also required to furnish Form 16A to the seller of property. 

How to Determine whether the Seller is a Resident or a Non-Resident

Determining the Residential Status of the Seller is an important thing to be done while doing a property transaction with NRI as the Rate of TDS to be deducted depends on whether the seller is a Resident in India or a NRI in India for Income tax purposes.

Important Points while Determining the residential status of the Seller (Whether Resident or Non Resident)

1. The citizenship of the country does not matter while determining whether the seller is Resident or Non-Resident in India. Even if the person is a citizen of India but staying in a foreign country, he would still be considered as a Non-Resident for Income Tax purposes. The Income Tax Act nowhere talks about Citizenship – it only talks about no. of days spent in India.
2. Even if the Seller has Indian Aadhaar Card and PAN Card, he can still be considered as a Non-Resident in India. The Residential Status is determined only on the basis of no. of days spent in India and not on the basis of Aadhaar Card or PAN Card.
3. The type of bank account of the seller also does not make any impact on the Residential Status of the Seller. Merely because a person has not converted his resident savings account to NRI Bank Accounts, he can still be considered as a Non-Resident