Deduction of TDS On Sale of Property by
Where a NRI sells a property situated in India, they are liable to capital gains tax in India.
If the NRI is a tax resident of another country , they can claim benefit ofTaxTreaty provision , if they are more beneficial than the provisions of the IncomeTaxAct, 1961 . In this article, we have discussed various tax aspects applicable on sale of property by NRI’s, Deduction of TDS on sale of property by NRI (by purchaser), howTDS can be reduced through application to income tax office, and the process involved in obtaining such certificate.
To understand this aspect in a short duration, you can Watch our Video :–
Applicability of TDS on Sale of Property by NRI
Every time, a non-resident sells a property,TDS is required to be deducted by the buyer, whether the buyer is a resident or a non-resident.The buyer will deduct TDS on purchase of property from NRI, before paying the seller of property.The buyer will deposit theTDS on purchase of property from NRI to the IncomeTax Department and it will appear as a tax credit in the income tax account of the seller, which he can offset against his tax liability/ or claim a refund, if total tax deducted is higher.The rate ofTDS on sale of property by an NRI , would vary, depending on sale consideration, since higher consideration may increase the surcharge rate applicable to the NRI, and therefore increase the tax rate.
Following aspects will be covered in respect of Deduction of TDS on sale of property by NRI in thisArticle
● Rate ofTDS deduction , and the amount on whichTDS will be deducted
● Process of obtaining lowerTDS certificate from IncomeTax office
● Measures to reduce tax on Capital Gains
Applicability of tax deduction on sale of property by NRI
Whenever there is a transaction for sale of property by a NRI to a resident or another non resident, TDS is required to be deducted under the provision of the IncomeTaxAct, 1961. In determining the deduction ofTDS on sale of property by NRI, the following provisions are required to be evaluated : –
Following aspects will be covered in respect of Deduction of TDS on sale of property by NRI in thisArticle
● Residential status of the seller of the property – Residential status of the buyer is not considered for deduction ofTDS;
● Sale Consideration of the property;
● Cost ofAcquisition of the property;
● Period of ownership of the property ;
● Expenditure incurred on transfer of property ; Whenever there is a transaction for sale of property by a NRI to a resident or another non resident, TDS is required to be deducted under the provision of the IncomeTax Act, 1961. In determining the deduction ofTDS on sale of property by NRI, the following provisions are required to be evaluated : –
Such capital gains can be liable to be taxed in India as well as the State where the NRI is a tax resident, but any taxes paid in India are generally reduced from the tax payable by NRI in his State of residence. If you want to understand how taxes paid in India can be offset against your tax liability overseas, Talk to our tax expert .
Key aspects
We will explain the provisions dealing with the deduction ofTDS on sale of property by NRI, considering the following important aspects in mind –
● Seller of Property is a Non-Resident Indian ;
● Property is situated in India ;
Such capital gains can be liable to be taxed in India as well as the State where the NRI is a tax resident, but any taxes paid in India are generally reduced from the tax payable by NRI in his State of residence. If you want to understand how taxes paid in India can be offset against your tax liability overseas, Talk to our tax expert .
Key aspects
We will explain the provisions dealing with the deduction ofTDS on sale of property by NRI, considering the following important aspects in mind –
● Seller of Property is a Non-Resident Indian ;
● Property is situated in India ;
What is the Rate of TDS on Sale of Property by NRI
Note: It is to be noted that Surcharge and Cess are to be levied on this amount. The effective rate ofTDS will be after considering surcharge and cess.The rate of surcharge and cess for long term capital gain to NRI are as under;
As per Union Budget 2022, the surcharge rate on capital gain has been capped at 15%.
In the case of short-term capital gains, surcharge and cess would be applicable as per income tax slab.
Tax rate will depend on Capital Gains which can be either LongTerm capital gains or ShortTerm capital gains .To decide this aspect, following criterion needs to be considered :
Note – If the property is inherited, then for duration of capital gain, the date of purchase of property for the original owner has to be considered.
Amount on which TDS will be deducted
It is to be noted that theTDS will be deducted on the amount of sale consideration and not on the profit earned during the transaction.TDS will be deducted on any part payment/ advance payment / full payment made in the sale transaction of property.
The procedure for deduction ofTDS on purchase of property from NRI will be as per Sec 195 of IncomeTaxAct.
TDS Deduction Certificate under Sec 197
The facility of making an application for NILdeduction / Lower deduction of tax at source is provided by Sec 197 of IncomeTaxAct. For availing this facility, the assessee should make an application before theTDSAssessing Officer who has jurisdiction in Form 13 to the Income Tax Department on the basis of which computation of capital gain is done for discharging final tax liability.
Details to be required for obtaining Nil or Lower Tax Deduction Certificate.
● Copy of Passport ;
● Copy of Sale Agreement ;
● Copy of Purchase Agreement ;
● Copy of last filed ITR ;
● Any other document required by tax authorities
After ascertaining all the details from the form submitted by the seller, the IncomeTax Department will communicate theTDS amount which will be either NIL/ Lower deduction ofTDS.This will entirely depend upon the capital gains arising on the purchase of property from NRI. The mode of communication is the certificate given by the Income Tax Department, which is also called with-holding certificate.
The seller is required to give this certificate to the buyer who will in turn deduct theTDS amount as per the rates mentioned in the certificate given by the IncomeTaxAuthorities.
Importance of obtaining this certificate by seller
This certificate can help seller to pay tax on capital gains arising on the transaction . If the certificate is not obtained by the seller, the tax will be paid on the full sale consideration. For example, if the property is sold for 75 lakh,TDS deducted by buyer would be Rs. 15 lakh (excluding surcharge and cess) . However, if a certificate is obtained at 4%, the total tax deducted will be Rs. 6 lakh.
Implication of wrong/ no deduction of TDS for the seller and the buyer
If theTDS has been wrongly deducted or not deducted, the implications for the buyer will be as under : –
● Property of the buyer can be held by IncomeTax Department, if the Seller does not pay his taxes ;
● Payment ofTDS has to be done by the buyer
However at the same time there would not be any implication on the process of registration of the property.
Buyer must obtain TAN number
The buyer has to obtainTAN for deduction ofTDS. WhileTAN is not required in case the property is purchased from a Resident Indian, it will be mandatory if the property is purchased from a Non Resident Indian. It is pertinent to mention here that only buyer is required to obtainTAN and not seller.
Question: What is the Taxation of Income derived by a non-resident or NRI from Sale of house or immovable property or building situated in India and deduction of TDS on sale of property by NRI ?
Answer: Income derived by a non-resident or NRI from sale of house or immovable property or building situated in India can be taxed in India or the country, of which the non-resident or NRI is a tax resident.
Let's look at TDS on sale of property by NRI, who is a tax resident of USA: –
● Step 1- Under the provision of IncomeTaxAct 1961, an NRI is liable to pay taxes in India under the head capital gains on sale of property situated in India ;
● Step 2 – The buyer is under an obligation to deductTDS on sale of property @ 20% / 30% (increase by the surcharge and cess as applicable) unless, a lower withholding tax certificate is obtained from the tax department.
To claim an exemption from such deduction ofTDS on purchase of property from NRI, one can evaluate if any benefits are available under theTaxTreaty entered between India and their country of residence. For this purpose the following steps needs to be followed : –
● Step 1 : – Determine whether you are a tax resident of USAor India ;
● Step 2 : – If you are a tax resident of USA, look atArticle 6 of the India USATreaty.
● Step 3 : – If you are taxable in India as perArticle 6, then the taxation cannot be escaped.
● Step 4 – Obtain a Lower withholding tax certificate from the IndianTax office and get the deduction of taxes accordingly. If the buyer has it, even better as you would be saved from lot of paperwork.
