Tax implications and TDS on the sale of property by NRIs in India

Non-resident Indian (NRI) property sales in India have tax ramifications. The Tax Deducted at Source (TDS) on the sale of property is one such crucial issue. In this blog article, we will look at TDS on property sales by NRIs in India, explore numerous exemptions for saving tax on capital gains, present a step-by-step approach for submitting TDS, highlight crucial aspects, and answer frequently asked concerns.

TDS Rates for NRIs Selling Property in India

When a resident buys property from an NRI, the rate and compliance are different than when buying is done from a resident Indian. When the seller is an NRI, TDS is deducted on capital gain income and not the sale consideration, Section 195 of the Income tax Act is applicable in such case.

TDS rate for property being sold by NRI is same as that of capital gain income tax rate. In the case of long-term capital gain (when the property is being held for more than 24 months), rate of TDS will be 20%. In case of short-term capital gain (when property is held for less than 24 months), rate of TDS will be 30%.

Here are the effective rates of TDS in case of long-term capital gain (LTCG) on property purchase from an NRI.

ParticularsLTCG IS UPTO 50 LACSLTCG IS 50 LACS TO 1 CRLTCG IS MORE THAN 1 CR
CAPITAL GAIN TAX RATE20%20%20%
ADD: SURCHARGENIL10% OF ABOVE10% OF ABOVE
TOTAL TAX RATE20%22%23%
ADD: HEALTH & EDUCATION CESS
(W.E.F. 1/4/18)
4% OF TOTAL TAX RATE4% OF TOTAL TAX RATE4% OF TOTAL TAX RATE
EFFECTIVE TDS RATE20.8%22.88%23.92%

Note: Surcharge, health and education cess are added to applicable slab in case of short-term capital gain also.

It’s crucial to note that the TDS rates listed above are the standard rates that apply under typical conditions. However, in some scenarios, such as when an NRI seller obtains a lower TDS deduction certificate from the Income Tax Department, the buyer may be compelled to deduct TDS at a different rate.

To guarantee compliance, the buyer must deduct the necessary TDS amount from the sale consideration and deposit it with the government within the time limit indicated. The TDS amount deducted functions as a prepayment of taxes on the NRI seller’s capital gains.

To ascertain the exact TDS rates and ensure compliance with the latest rules, NRIs should contact a tax specialist or chartered accountant.

COMPLIANCE THAT ARE TO BE TAKEN CARE OF WHEN TDS IS TO BE DEDUCTED ON PROPERTY BEING SOLD BY AN NRI

  •  Buyer needs to apply for a TAN number in order to deduct TDS, TDS is deducted at the time of making payment to NRI.
  • TDS deducted by buyer has to be deposited with the Government  within 7 days from end of the month in which TDS has been deducted.
  • After TDS is deposited TDS return shall also be filed by the buyer in Form 27Q. After this return is submitted, TDS certificate (Form 16A) can be downloaded by the buyer from TRACES.

Save on Capital Gains Taxes

Exemption under Section 54

An NRI can claim an exemption under Section 54 of the Income Tax Act if they sell a residential property and reinvest the capital gains in another residential property within the required time restrictions. The new property must be purchased either one year before or two years after the transaction. Alternatively, the NRI may build a residential residence within three years of the sale date.

Exemption under Section 54EC

Under Section 54EC, NRIs can save tax on long-term capital gains by investing in selected bonds. The National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC) issued these bonds with a five-year lock-in period. The investment must be made within six months of the selling date, and the maximum amount qualifying for exemption is Rs. 50 lakh.

Important Information about TDS on NRI Property Sales

PAN (Permanent Account Number)

To simplify TDS compliance, both the buyer and seller must have a PAN.

Reduced TDS Deduction

If the NRI seller believes that their capital gains will be less than their total taxable income, they can request to the Income Tax Department for a lower TDS deduction by submitting Form 13. Take help of TAX VIC to obtain a lower TDS certificate. Sellers of the property can avail this if they fulfill conditions.

Tax Consequences of Repatriation

NRIs must examine the tax ramifications of returning sale revenues to their home country.

Repatriation of Sale Proceeds

NRIs must follow the Reserve Bank of India’s (RBI) laws regarding the repatriation of sale proceeds to their home country. NRI’s have the permission to repatriate a total USD 1 MILLION per financial year from their NRO account. At the time of remittance Form 15 CA or Form 15 CB from a chartered accountant is requested by the bank. TAX VIC helps with repatriation certificate to NRIs.

Capital Gains Account Scheme (CGAS)

If an NRI is unable to reinvest capital gains in a new property before the income tax return filing deadline, they can deposit the funds in a CGAS account with a designated bank. This enables them to claim the capital gains tax exemption when the property is purchased or constructed later.

Double Taxation Avoidance Agreements (DTAA)

NRIs can use DTAA, if applicable, to avoid double taxation on capital gains on the sale of property in India. Based on the tax treaty provisions, the NRI can seek relief under the DTAA by claiming a tax credit or an exemption in their home country.

Consultation and Tax Planning

NRIs should consult with tax professionals or chartered accountants who specialize in NRI taxation. They may assist with tax planning techniques, assuring compliance, and maximizing tax benefits when selling real estate in India.

Retaining Documents

NRIs should save all essential documents relevant to the property sale, TDS deduction, and claimed exemptions for a minimum of six years. During a tax examination or audit, these records serve as proof of conformity.

FAQs (Frequently Asked Questions)

Is it possible for an NRI to transfer property in India?

Yes, an NRI can transfer property in India by selling it or donating it to someone else.

How much TDS is levied on NRI property?

TDS rates for NRIs selling property in India vary according to the type of property and the holding period. For further information on the tax rates, please see the table provided in this blog.

How may non-resident Indians avoid paying TDS on property sales?

NRIs can avoid paying TDS on property sales by using the exemptions described in this blog under Section 54.

When must the TDS amount deducted from the sale consideration be deposited?

The buyer must pay the TDS amount to the government within 7 days of the end of the month in which the TDS was deducted.

Can an NRI seek a refund if the TDS deducted exceeds the actual tax liability?

Yes, by submitting an income tax return in India, NRIs can obtain a refund for the excess TDS deducted. The refund can be received by submitting the relevant papers and confirmation of tax due.

Is there any TDS exemption available for NRIs selling property?

No, there are no special exemptions from TDS on property sales by NRIs. NRIs, on the other hand, can seek exemptions from capital gains tax liability by meeting specific circumstances under Sections 54, 54F, or 54EC of the Income Tax Act.

Is it necessary for non-resident Indians to obtain a Tax Deduction and Collection Account Number (TAN)?

No, NRIs who sell property in India do not need to obtain a TAN. It is the buyer’s responsibility to obtain a TAN for TDS compliance.

Can an NRI entrust the completion of TDS compliance on their behalf?

Yes, an NRI can entrust the TDS compliance process to a representative or power of attorney holder, including completing the TDS return and depositing the TDS money.

Is there a penalty for failing to comply with TDS requirements?

Yes, noncompliance with TDS responsibilities can result in penalties and interest costs. To avoid fines, both purchasers and sellers must meet their TDS responsibilities within the time range given.

Can NRIs take advantage of indexation when calculating capital gains tax?

Yes, NRIs can take advantage of indexation when calculating capital gains tax on property sales. Indexation accounts for inflation during the holding period, lowering the tax liability.

Are there any reporting obligations for NRIs who sell property in India?

In India, NRIs must record the sale of property and capital gains on their income tax returns. They must provide information on the property sale, TDS deducted, and any exemptions requested.

Conclusion

As an NRI, selling property in India has TDS duties as well as capital gains tax ramifications. NRIs can handle the tax requirements smoothly while optimizing their tax liability by understanding the TDS rates, exemptions, and TDS filing process. To ensure compliance with the most recent regulations and to optimize tax savings, consult with a tax professional or chartered accountant.

Need professional assistance, contact us: info@taxvic.com
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By TAXVIC

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