tds_on_sale_of_property_by_nri_india


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TDS ON SALE OF PROPERTY BY NRI IN INDIA

Mastering TDS: A Comprehensive Guide for NRIs Selling Property in India

When a non-resident Indian (NRI) sells a property, as per Section 195 of the Income-tax Act, 1961 ('the Act') TDS is required to be deducted at 20% plus surcharge and cess by the buyer from the sale consideration. The TDS rate would be higher (30% plus surcharge plus cess) if the immovable property was held for less than two years.

Further, unlike section 194-IA of the Act, which prescribes TDS at the rate of 1% for RESIDENT sellers' selling property exceeding 50 lakhs, there is no minimum threshold limit or lower rate for TDS deduction in case of NRIs.

Who is a Non Resident Indian for Income Tax Purposes:-

'Non-resident Indian' is an individual who is a citizen of India or a person of Indian origin (COI / PIO) and who is not a resident of India.

As per the provisions of section 6 of the Act, an individual is said to be a resident if he satisfies either of the two conditions as mentioned below:

He/she is in India for 182 days or more during the financial year.

If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year.

A Non Resident (NRI) is an individual who does not satisfies EITHER of the above conditions

In case of purchase of property from Non-Resident, TDS is deductible by the Buyer/Purchaser, irrespective of actual capital gain tax liability at the below mentioned rates on sale consideration.

Property sale consideration	Less than 50 lakh	50 lakh to 1 crores	More than 1 crores
Tax Rate	20%	20%	20%
Add: Surcharge	0%	10% of above	15% of above
Total Tax including	20%	22%	23%
Add: Cess	4%	4%	4%
Effective TDS Rate	22.80%	22.88%	23.92%

In such cases, where the substantial part of the sale consideration is lying idle with the government earning no interest, the seller (NRI) can apply for a LOWER DEDUCTION CERTIFICATE ('LDC').

As per the provisions of Section 197 of the Act, a person can obtain LDC from the Assessing Officer, allowing the deduction of tax either at a lower rate compared to the effective rate or at NIL rate of TDS, depending on facts and features of each case based on the application made.

The procedure to acquire a LOWER DEDUCTION CERTIFICATE is as follows

Step 1: CALCULATE TAX LIABILITY ON CAPITAL GAINS

As per the provisions of the Act, Capital gain tax is computed by considering higher of the Stamp duty valuation or actual sale consideration less indexed cost of acquisition. In case of substantial difference between the computed tax liability and the TDS (to be deducted), it is advisable for the seller to apply for a LDC to avoid blockage of substantial funds.

Step 2: TRANSFER OF JURISDICTION

Before filing of application for LDC, one needs to ensure that the jurisdiction of the NRI/Seller is transferred to international tax jurisdiction. Otherwise same needs to be applied for.

STEP 3: FILING OF APPLICATION FOR LDC

The application has to be filed vide prescribed Form 13, online. The seller needs to keep the following preliminary documents handy, as the same are required for submitting online.

Draft Sale Deed/Agreement for Sale
Purchase Agreement of the Property being sold
Valuation report if property acquired before 2001.
KYC of Seller and Buyer
Proof of Re-investment made for claiming exemption u/s 54/54F/54EC/54GB
Previous year Income Tax Returns

Once the application is submitted, the assessing officer will examine the same, ask for additional information/ documents/ explanation if needed, before issuing the certificate or rejecting the application. It generally takes three to four weeks for processing the application. Further, the department issues certificates for withholding tax based on the merits of the case.

LDC Validity

A LDC is valid until the end of the financial year and the seller should ensure that the payment is processed within the timeframe mentioned in the certificate.

Refund Mechanism for Excess TDS

If for any reason, TDS is deducted at a rate higher than the final tax liability of the seller, the seller can always file his tax return and claim a refund of the excess TDS deducted. The LDC only ensures that the cash flow of the seller is not adversely affected on account of higher TDS. Further, Irrespective of the fact that the TDS is deducted, the seller has to file an ITR in the year of sale.

Conclusion:

Understanding TDS, exemption provisions and the process for obtaining a Lower Deduction Tax Certificate is crucial for NRIs selling property in India. Seek professional advice to navigate the intricate taxation landscape effectively and optimize tax liabilities.

In case of queries or require any further assistance, you may contact us at cavishalshethiya@gmail.com

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