NRI Exclusive!! TDS on NRI Sale of Property- Here’s How to Get Your Lower rate TDS Certificate and More!!! Immovable property situated in India hence situs to tax in India even though you are NRI
Presuming you are an NRI seller, read this article to clear all your doubts on TDS on sale of property by NRI.
Tax should be deducted only on capital gains and not on the sale price, but buyer is liable to deduct TDS on entire sale proceeds. Hence advisable to get lower rate TDS certificate in advance!
TDS deduction varies as per the deal value.
NRI TDS CalculatorTDS RATE (%):
Normally TDS rate on sale proceeds of property is 1 % if you are resident in India, whereas if you are NRI in India the highest TDS as calculated above applies. So well in advance plan for your lower rate of TDS deduction certificate, otherwise buyer will deduct higher rate TDS. Unnecessary your tax deducted at higher rate you go for income tax refund, which is tricky situation.
Procedures for getting Income tax refund.
- (1) Apply 197 certificate.
- (2) Get TDS deduction certificate from buyer in form 16A.
- (3) File income tax return within due date
- (4) Get your income tax refund, in excess of higher deduction made by buyer over and above liable to pay capital gain tax in India.
Procedures for getting 197 certificate.
- (1) Get digital signature certificate DSC.
- (2) Apply to Income tax an application for lower TDS rate in respect of selling of property.
- (3) Scanned copies of Documents
- (A) Seller PAN
- (B) Buyer PAN, TAN
- (C) Agreement to sell
- (D) Sale deed of property, actually brought.
- (E) Evidence of payment made for buying property, prefer bank statement highlighted payments.
- (F) Your OCI passport for last four years, showing date of arrival, departure in/ from India. Nos. of days actually stayed in India.
Selling of a property has never been an easy job. Being an NRI can only mean the trouble is twice the amount. Even if you find the right buyer to seal the deal, the complexities involving the TDS is unappealing.
If you don’t follow the procedures of TDS with care, you could end up paying a lot on tax. And if you don’t, Income Tax dept. will be on your back demanding even more.
Today, we’ll see what is behind these so called “complexities” and procedures of TDS on your Long Term Capital Gains (LTCG).
Are they really complex to understand for others, other than professionals?.
What is LTCG on real-estate for NRI?
Let’s get with the basics first. (LTCG stands for Long Term Capital Gain) is the gain (or profit) arising from the sale of immovable property by NRI, held for 2 years or more.
Ownership period lesser than 2 years is brought under STCG (Short Term Capital Gain).
Why TDS on Sale of Property for NRI?
TDS on sale of property is mandatory for everyone.
TDS must be deducted on all sale of properties regardless of Short Term or Long Term (Property value) Indian or NRI sellers.
As said above, in this article we will focus on NRI sellers and the TDS deducted on their sale of property.
Since it is not easy to make an NRI comply the tax rules of India, the Income Tax Department introduced the TDS method for LTCG.
What Every NRI Seller Must Do on Sale of Property
Prompt the buyer to deduct TDS before the sale of property.
You, an NRI seller, must inform the buyer the Capital Gain arising from the sale of this property.
The buyer will then deduct TDS on the Capital Gain amount which you informed.
Nevertheless, you should not come up with a figure of Capital Gain arising on the sale of property by yourself. The exact amount of Capital Gain arising must be calculated by an Income Tax Officer.
You should request the Income Tax Officer under whose jurisdiction your PAN comes, for the appropriate Capital Gain amount.
The Income Tax Officer in turn will calculate the Capital Gain from the available legitimate information you provide. The required information include: Sale Value of Property, Expenditure Incurred, Indexed Cost of Acquisition, Indexed Cost of Improvement and Exemptions (if any).
After calculating the Capital Gain, the Income Tax Officer will issue a TDS certificate describing the calculations of Capital Gain.
The NRI seller is supposed to give this certificate to the buyer to intimate the amount on which the TDS should be deducted. The buyer will deduct the TDS on Capital Gain as prescribed in the certificate.
Provision for getting permission for lower/nil TDS
In the case of property owned by non-resident Indians, there is provision for applying to the Assessing Officer for permission for lower/nil TDS. This provision is not applicable for property owned by resident Indians.
The NRI seller may also apply in the prescribed form under section 195(3)/ 197 for grant of a certificate authorizing him to receive the sum with lower/nil TDS. If such a certificate is granted, the person responsible for paying the amount can make the payment with lower/nil TDS.
How to get the refund of TDS under section 195?
Now let us come to the procedure of getting refund of the tax deducted. India has entered into Double Tax Avoidance Agreements with several countries. DTAA and the provisions of the Indian I-T Act, whichever is more beneficial to the taxpayer will apply.
NRIs in those countries may avail of the lower rate, provided they have a valid tax residency certificate.
In the case of sale of property by an NRI, TDS has to be deducted by the purchaser.
Illustration: - I will try to keep this illustration very simple as there is a common perception that this subject matter is complex!
This post is dedicated to my NRI friends who would like to know about their TDS liability at the time of sale of Property in India.
Mr. NRI who leave in India having a residential accommodation in Gurgaon!
Now he want to sell his Gurgaon flat which is long back investment property at a sale consideration INR 2.50 crore and want to invest in another Flat in Bangalore!
Therefore 1st task is to calculate long term capital gain of Mr. NRI. Indexed cost of acquisition of property is approx INR 1.50 Crore and he is selling it for 2.5 Cr. Long Term Capital Gain from property sale is approx 1 Crore and corresponding Long Term Capital Gain Tax at 26% is 26 Lakh.
If in case of Mr. NRI, buyer deduct TDS at 26% u/s 195 then TDS will be deducted on sale consideration value i.e. 2.5 Cr. TDS u/s 195 will be approx INR 65 Lakh against Mr NRI Long Term Capital Gain Tax liability of 26 Lakh. In short, u/s 195 excess TDS to the extent of INR 44 lakh will be deducted assuming Mr NRI decided not to re-invest capital gains from property sale.
Further suppose he invested sale proceeds of Gurgaon flat into Bangalore Flat than excess TDS on account of LTCG of Gurgaon flat for which exemption u/s 54 is available in this context of excess TDS u/s 195 to the extent of INR 26 lakh deducted can be save by applying NIL/ Lower rate TDS Certificate from Income tax department.
Buyer Liable to deduct TDS on entire sale consideration. Now anomaly in this rule is that NRI is liable to pay Capital Gain Tax only on the Capital Gain arising out of sale of the property but unfortunately TDS is deducted on the total Sale Value of the property. Therefore in most of the cases there are no GAINS as such from the sale of property and actually NRI incur LOSS from the sale of the property if TDS refund is not claimed. As a result, NRI has to go through the process of claiming TDS refund from Income Tax Department.