Tax Deducted at Source (or TDS) is a form of income tax that is deducted at the time when any specific payment is made for salary, rent, etc. Similarly, on the sale or purchase of any property, TDS has to be deducted. While paying the amount for buying the said property, the buyer deducts the TDS and pays the remaining balance. This deducted amount is then required to be deposited with the Income Tax Department.

Applicability On Sale Of Property By NRIs

In determining the TDS to be deducted, the residential status of the seller plays a pivotal role. Should the seller be a resident Indian, a fixed 1% of the Sale Price would constitute the TDS to be deducted. Conversely, if the seller is a Non-Resident Indian (NRI), the quantum of money received by the seller becomes the determinant for the TDS amount.
It’s imperative to note that the residential status of the buyer holds no sway in this calculation. Exclusively, the residential status of the seller is the focal point when computing the TDS amount.

What Is The Rate Of TDS On NRI Property Sale?

If the property in question has been held for more than 2 years and thus the nature of capital gain is long-term, then the TDS rate applicable on such property would be 20%. Conversely, for properties held for less than 2 years, then the TDS would be deducted as per the Income Tax Slab Rates of the NRI seller.
The effective rate of TDS to be deducted on the sale of a property a Non-Resident Indian in the case of Long-Term Capital Gains would be as demonstrated in the following table:

    Property Sale Price (in Rupees)  
Particular <50 lakhs 50 lakhs – 1 crore >1 Crore
Long Term Capital Gains Tax 20% 20% 20%
+ Surcharge Nil 10% of above 15% of above
+ Cess 4% of above 4% of above 4% of above
Applicable TDS Rate 20.8% 22.88% 23.92%

The imperative to deduct TDS arises whenever a payment is extended to a Non-Resident Indian (NRI) in the context of property acquisition. Notably, this obligation holds true even when an advance payment is made in anticipation of property purchase – TDS deduction remains a requisite.

TDS Exemptions And Reductions

Exemptions from TDS under the Income Tax Act are granted in specific scenarios. These include instances where individuals are not obligated to file an Income Tax return under Section 139. Additionally, those assesses who furnish a declaration under Section 15G/15H at the commencement of the financial year, and subsequently have it authenticated by the deductor in accordance with prescribed rules, are eligible for TDS exemption.
Moreover, exemptions are extended to cases explicitly outlined in subsection 3 of Section 194A of the Income Tax Act. Another avenue for exemption is for individuals who secure a certificate under Section 197 of the Income Tax Act from the assessing officer. This certificate provides explicit instructions to the deductor, either to refrain from deducting tax for the specified assessee or to deduct tax at a reduced rate, adhering to the conditions stipulated in the certificate. The certificate’s duration is specified by the Income Tax Officer.
For all other scenarios, tax deduction must conform to the provisions delineated in Section 194A of the Income Tax Act. Institutions benefiting from these exemptions are required to file an Income Tax return and claim a refund for any deducted tax, if applicable. Should they wish to circumvent TDS, an application to the relevant assessing officer for a certificate under Section 197 of the Income Tax Act is imperative.

TDS Payment, TDS Return, And Tan No. For NRIs

Numerous compliance requirements come into play when acquiring property from a Non-Resident Indian (NRI). Primarily, the buyer must possess a Tax Deduction and Collection Account Number (TAN No.) for TDS deduction. While unnecessary for purchases from Resident Indians, obtaining a TAN No. becomes imperative when dealing with Non-Resident Indians.
Distinct from a Permanent Account Number (PAN No.), the TAN No. is solely the buyer’s responsibility; the seller is not involved in this process. If the buyer lacks a TAN No., application should be made before initiating TDS deduction. It’s noteworthy that in cases with two buyers, both are mandated to apply for a TAN No.
The TDS amount, once deducted, must be remitted to the Income Tax Department within seven days from the month’s conclusion in which the deduction occurred. This deposit is executed using Challan No./ ITNS 281 and can be completed online or through various bank branches. Online TDS deposit can be facilitated through this link: https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp.
Following the TDS deposit, the buyer must furnish a TDS Return, specifically in Form 27Q, separately for each quarter when TDS was deducted. The deadline for this return is 31 days from the quarter’s end in which the deduction transpired. Subsequently, after the TDS deposit and Return filing, the buyer is obligated to provide Form 16A to the property seller.

Compliance Procedures For Buyer And NRI Seller

 Compliance Procedures for Buyers

In the realm of property acquisition from a Non-Resident Indian (NRI), the Buyer shoulders a spectrum of responsibilities, including:

1. TDS Deduction Timing:

• Deduct TDS at the time of each payment, distinct from the property registration process.

2. TDS Deposit:

• Ensure prompt deposit of the deducted TDS with the Income Tax Department, adhering to the designated schedule.

3. TDS Return Filing:

• Submit the TDS Return to the Income Tax Department within the stipulated schedule for TDS Return filing.

4. Form 16A Issuance:

• Issue Form 16A to the seller subsequent to filing the TDS Return. Form 16A serves as a TDS Certificate, affirming the TDS deposit by the buyer to the seller.

5. Interest On Late TDS Payment:

• In the event of delayed TDS payment, be cognizant of the interest levied at the rate of 1%/1.5% per month.

6. Penalties For Late TDS Return Filing:

• Be mindful of the penalties associated with late TDS Return filing, amounting to Rs. 200 per day. Additionally, the Income Tax Officer reserves the right to impose a penalty of up to Rs. 1 lakh.

7. TDS On Home Loan Payments:

• Acknowledge that TDS is to be deducted when making payments to the seller in the context of home loans, not during the payment of EMIs to the bank.

8. TDS On Advance Payments:

• Apply the stipulated TDS schedule to advance payments, extending its applicability to all payments preceding the issuance of the Lower TDS Certificate.

 Responsibilities of the NRI Seller

For sellers engaged in the sale of property to Non-Resident Indians (NRIs), it is imperative to consider the following aspects in relation to TDS deduction:

1. Capital Gains Certificate:

• Endeavor to obtain a certificate from the Income Tax Department for the computation of Capital Gains. This certificate can effectively lower the TDS to be deducted.

2. Documentation For Lower TDS:

• Submit essential documents, including purchase price details, purchase date, and expenses related to renovation or construction, along with Form 13. The Income Tax Officer will assess these documents, and upon satisfaction, issue a certificate for a reduced TDS deduction.

3. Consequence Of No Certificate:

• If unable to secure the certificate, TDS will be deducted on the sale value, resulting in excess TDS deduction.

4. Form 16A Collection:

• In addition to property registration documents, the seller should collect Form 16A from the buyer.

5. Capital Gains Reduction:

• Sellers aiming to reinvest Capital Gains in India can potentially reduce their tax liability and TDS by strategically managing Capital Gains.

6. Refund Application For Excess TDS:

• Sellers not opting for the certificate can apply for a refund of the excess TDS deducted at the end of the fiscal year.

7. Form 13 For Co-owners:

• In situations involving co-owners, both sellers are required to independently file Form 13 to avail reduced TDS rates.

8. Applicability For OCI Card Holders:

• The provisions of lower TDS certificates extend to both NRIs and Overseas Citizen of India (OCI) cardholders, allowing OCI cardholders to enjoy the same benefits.

How Can NRIs Avoid Double Taxation On Property Sales?

In the intricate landscape of global property transactions, many nations enforce taxes on property sales by their residents, irrespective of the property’s geographical location. Take, for instance, an NRI residing in the US selling property in India – both the US and India will wield their tax jurisdictions. The US imposes taxes due to the individual’s residency, while India levies taxes owing to the property’s Indian location, paving the way for potential double taxation.

Yet, in a bid to circumvent this dual tax burden, India has strategically entered into Double Taxation Avoidance Agreements with numerous nations. These agreements articulate a pivotal provision: if an individual has settled their tax dues on the sale of property in India, they become eligible for a tax credit corresponding to the taxes paid in India. This credit operates as a fiscal antidote, curbing their tax obligations in the other country and exemplifying India’s commitment to averting the complexities of double taxation.

Conclusion

In the realm of property transactions involving Non-Resident Indians (NRIs), the dance of Tax Deducted at Source (TDS) entails strategic responsibilities for both buyers and sellers. NRIs selling property navigate TDS intricacies, with residential status influencing tax liabilities. Obtaining certificates for lower TDS and meticulous documentation are key strategies. Buyers bear the responsibility of timely TDS compliance, deposit, and certificate issuance. Addressing the specter of double taxation, India’s engagement in Double Taxation Avoidance Agreements underscores a commitment to easing dual tax burdens in international property transactions. Amid evolving tax landscapes, collaboration and adherence to frameworks remain essential in navigating TDS dynamics globally.

FAQs

1. How is the TDS amount calculated for NRI property sales?

The determination of the TDS amount hinges on the seller’s residential status. For resident Indians, a fixed 1% of the sale price constitutes the TDS, whereas for NRIs, it is contingent on the quantum of money received. The TDS rate undergoes variation concerning long-term and short-term capital gains.

2. Can sellers request a refund for excess TDS?

Certainly, sellers who haven’t chosen to obtain a lower TDS certificate have the option to apply for a refund for any surplus TDS deducted at the close of the fiscal year. This strategic maneuver aligns with the broader commitment to harmonize tax burdens in the dynamic realm of property transactions involving Non-Resident Indians (NRIs).

3. Is TDS applicable on advance payments made for property purchase?

Certainly, TDS is required to be deducted even on advance payments made for the purchase of property from Non-Resident Indians (NRIs).