TDS on Sale of Property by NRI: Guide from Sale to Taxation

If you are an NRI (Non-Resident Indian) who is selling a property, you  must be aware of the TDS (Tax Deducted at Source) requirements. TDS must be deducted when buying or selling any real estate property. The buyer is responsible for deducting a specific amount (known as TDS) from the payment made to the seller. 

After deducting the TDS, the buyer pays the remaining balance to the seller. The buyer is then required to submit the deducted TDS amount to the Income Tax Department on behalf of the property purchase from the NRI or Indian seller.

The amount that would be deducted would be determined by the Seller’s residency status at the sale. In the case of a resident Indian seller, the amount of TDS on the sale of property by NRI to be deducted would be 1 percent of the Sale Price; however, in the case of a non-resident Indian seller, the number of TDS to be deducted would be dependent on the amount of money received by the Seller.

The residential status of the Buyer would not be taken into consideration, and only the residential status of the Seller would be taken into consideration when calculating the amount of TDS on the sale of property by NRI to be deducted.

In accordance with TDS on the purchase of property from NRI section 195, the TDS on the sale of real estate by an NRI must be deducted, and it is preferably needed to be deducted on the Capital Gains. The Seller can’t compute their capital gains independently; instead, the Income Tax Officer is responsible for this task.

How to Determine if Seller is Resident or Non-Resident

To determine the seller's residential status, you can either use the Residential Status calculator prepared by the Income Tax Department, or you can calculate the number of days the seller has spent in India using this method–

Steps for Individuals to Determine Residential Status in India(for Tax Purposes)

If you're an NRI or a person of Indian origin planning to return to India, it's important to understand how to determine your residential status for tax purposes in India. Here are the key steps you can take:

1. Calculate the number of days you've spent in India: Your residential status is determined based on the number of days you spend in India each year. Calculate the total number of days you've been in India during the relevant financial year.
2. Evaluate the conditions for being classified as a resident: There are specific conditions you must meet to be classified as a resident for tax purposes. If you've been in India for 182 days or more in the relevant financial year, you're considered a resident. Alternatively, if you've been in India for 60 days or more in the financial year and have been in India for 365 days or more in the four years preceding the relevant financial year, you're also considered a resident.
3. Consider any exceptions: There are certain exceptions to the conditions for residential status. For instance, if you're an Indian citizen who leaves India for employment outside India, the 60-day condition doesn't apply. Similarly, if your Indian income is less than Rs. 15 lakhs and you're a citizen of India or a person of Indian origin visiting India, the 60-day condition doesn't apply.
4. Determine if you're an ordinary or non-ordinary resident: If you meet specific conditions such as being a non-resident in seven out of the 10 years preceding the relevant financial year, you may be classified as a non-ordinary resident.

By following these steps, you can accurately determine your residential status for tax purposes in India. It's important to note that income received outside India and citizenship status also affect your tax liabilities. 

Consulting with a tax professional can help you ensure you're meeting all necessary requirements and taking advantage of any available exemptions or deductions.

By accurately determining the seller's residential status, you can ensure that you apply the correct rate of TDS and avoid any unexpected costs or hassles during the property transaction. Stay informed and make your property transaction with an NRI a success.

How to Deduct TDS on the Purchase of Property by NRI

TDS is mandatory to be deducted from the sale amount during the sale/purchase of any property. While the buyer deduct some amount as TDS when paying the amount to the buyer, the balance is what actually stays with the buyer. 

This amount is what is deducted from the buyer’s end which is then deposited to the Income Tax Department. In case the seller is a resident Indian, the TDS typically is around 1% of the sale amount, while in the case of an NRI, the TDS deducted depends on the money the seller receives.

The TDS Rate on the Sale of a Property by an NRI

If you're an NRI selling a property in India, you'll want to pay attention to this: the Indian government requires a TDS (tax deducted at source) on the sale of NRI properties. And if you sell within two years of purchase, you could be hit with a whopping 30% TDS. Don't let this catch you off guard - stay informed and protect your investment.

In relevant cases where the amount is above INR 50 lakhs and INR 1 crore, there can also be a surcharge of 10-15% as well as health and Ed. Cess of 4% across the board. Previously, a higher surcharge was levied in case the property’s worth was higher than INR 2, 5 and 10 crores i.e., 23.92%.

The TDS Amount from Which Deductions are Done

Under Section 195, the TDS on the capital gains on the sale of the property is analysed by the Income Tax Officer. For this, the seller will have to file an application form 13 and ask the Income Tax Department to compute the capital gains. While such a process can seem complicated, the process can be simplified with the help of a chartered accountant. After the computation of the capital gains of the property’s seller, a certificate is issued for the TDS, which is later given to the buyer upon the property’s purchase.  

Repatriating money from outside of India by an NRI

In order to repatriate of money from outside India, the NRI will also need to submit forms 15CA and 15CB to the relevant bank, for which you can also avail of the services of a chartered accountant (whose signature will also be required for the Form 15CB). Along with various disclosures funds of the repatriation amounts will be needed to be declared on the taxes. NRIs for example can go for maximum repatriation of USD 1 million is allowed within a fiscal year. The Liberalised remittances facilities to NRIs/PIO and Foreign Nationals – A.P (DIR Series) Circular No.62 clearly lays out these instructions on the RBI portal 

To reduce your liabilities related to TDS on the sale of a property by an NRI, you will have to file an application with the Income Tax Department, particularly through form 13 that issues a Certificate for Nil or the Lower Deduction of TDS. Again, you can avail the services of your chartered accountant to get this process done smoothly.

TDS Payment, TDS Return, and TAN Number

When purchasing a home from an NRI, a slew of legal requirements must be followed. So, if you are wondering about how to pay TDS on property purchases, the first and foremost thing will be that the Buyer must obtain a TAN number to deduct TDS. When purchasing a property from a Resident Indian, a TAN number is not necessary; however, a TAN number is required when purchasing a property from a Non-Resident Indian.

In contrast to a PAN Number, a TAN Number is an abbreviation for Tax Deduction and Collection Account No. Only the Buyer is needed to have this TAN number; the NRI selling property in India is not obliged to have this number. If the Buyer does not already have a TAN number, he should request one before the deduction of TDS on the sale of property by NRI. It is vital to remember that if there are two purchasers, they will be needed to register for a TAN Number.

The Buyer's responsibility is to deposit the TDS on the sale of property by NRI thus collected with the Income Tax Department within seven days after the end of the month in which the Buyer collected the TDS. 

This TDS for NRI property sale needs to be submitted with Challan No./ ITNS 281 and maybe deposited online and via a variety of financial institutions. 

Following the receipt of the TDS deposit, the Buyer is obliged to submit a TDS Return. This TDS Return must be submitted in TDS on the sale of property by NRI form 27Q and must be submitted individually for each quarter in which TDS has been deducted from the gross income. This TDS Return must be submitted within 31 days after the end of the quarter in which the TDS has been deducted unless an extension is granted. 

Tax Consequences for Non-Resident Indians (NRIs) Who Sell Property in India

The amount of TDS on the sale of immovable property by NRIs will be determined by the length of time you have owned the property. It is necessary to pay long-term capital gains tax on property that has been in your possession for more than two years if you sell it after that period. 

The short-term capital gains tax will apply if a property is held for less than two years. A property's purchase date by the original owner will be taken into account for computing capital gains on a property that has been passed down through the family before the rate of NRI TDS on the property sale.

Seller Claiming to be a Resident in India for NRI Property Transactions

If the seller of a property claims to be a resident in India, it can have significant implications for NRI property transactions. While being a resident may offer certain advantages, it can also result in tax obligations for income earned outside India. This is a major reason why NRIs attempt to maintain their non-resident status.

Here are the considerations for the Seller and the Buyer while making a Property Sale–

Seller’s Considerations for TDS on Property Sale by NRI

The Seller should keep the following considerations in mind when it comes to the deduction of TDS for sale of property by NRI.

• Make an effort to get a Certificate from the Income Tax Department to compute capital gains, which would decrease the amount of TDS that must be deducted.
• Several papers, such as the purchase price, the date of purchase, and any costs incurred during renovation or construction, would be needed to be supplied with Form 13 before the TDS on the purchase of property by NRI. A certificate for a lesser TDS rate on the sale of property by NRI deduction will be issued by the Income Tax Officer once he has reviewed the papers and determined that they are satisfactory.
• Unless the Seller can get the Certificate, the TDS on an immovable property sale by NRI will be deducted from the Sale Value, which will result in an overpayment of TDS to the government.
• The Seller should collect form 16A from the Buyer in addition to the property registration documents. 
• If the Seller wants to reinvest the Capital Gains in India, they may minimize the number of Capital Gains realized, resulting in lower TDS on the sale of property for NRI and tax liability.
• The Seller may also seek a refund of the excess TDS deducted at the end of the year if he does not want to get this Certificate from HMRC.
• It would be necessary for both sellers (co-owners) to submit Form 13 individually to reduce the TDS rate on the purchase of property from NRI if there are two sellers.
• The terms of the reduced TDS Certificate apply to both NRIs and holders of OCI cards, and OCI cardholders may take advantage of the benefit in the same way as NRIs.

Buyer’s Considerations for TDS on Property Sale by NRI

The Buyer is to bear a great deal of responsibility when purchasing a property from an NRI. So, if you are clear on how to file TDS on the sale of property, you must also know about the several things the Buyer needs to do, including the following:

• Rather than deducting TDS at the time of each payment, TDS should be deducted at the time of property registration.
• The TDS on the sale of property by NRI above 50 lakhs that has been deducted must be submitted to the Income Tax Department in accordance with the schedule for depositing TDS.
• TDS Returns must also be filed with the Income Tax Department according to the timetable for submitting TDS Returns.
• Immediately after submitting the TDS Return, the Buyer must also provide the Seller with Form 16A. Form 16A is a TDS Certificate, which certifies that the Buyer has deposited the TDS with the Seller and has received the TDS.
• In the event of late payment of TDS, interest at the property purchase from NRI TDS rate of 1 percent / 1.5 percent per month will be charged.
• An Rs. 200 per day penalty will be assessed on anybody who files their TDS Returns beyond the due date. Also possible is a penalty of up to Rs. 1 lakh levied by the Income Tax Officer.
• For Home Loans, TDS on the sale of property by NRI is to be deducted when the payment is made to the Seller, rather than when the EMI is paid to the Bank, as is the case with other loans.

How to Avoid Double Taxation on Property Sales by Non-Resident Indians in Two Countries

Many countries pay a tax on the sale of real estate by their citizens, regardless of where the property is located in the world. 

Example: If an NRI resident in the United States sells property in India, both the United States and India will impose a tax on the transaction, including the TDS rate on the sale of immovable property by NRI. Because the NRI is a resident of the United States, the United States will impose a tax. India will levy tax because the property is situated in India, resulting in double taxation.

Nevertheless, India has engaged in Double Taxation Avoidance Agreements with several other nations to prevent the imposition of double taxation. These agreements stipulate that if a person has paid Tax on Sale of Property in India, they may be eligible to get a tax credit for the TDS on the sale of immovable property by NRI in India, which would lower their tax burden in the nation where the property was sold. In this scenario, proper disclosures must be made in the nation where the tax credit is being claimed to be valid.

Consider the following scenario: if you are an NRI resident in the United States and sell a property in India, you would be obliged to report such profits or losses on the sale of property in your United States Tax Return under Section D of Form 1040. Furthermore, when paying taxes to the United States government, you may deduct the taxes you paid to the Indian government (not including the TDS on the sale of immovable property by NRI) since India and the United States have a Double Taxation Avoidance Agreement.

NRIs are responsible for the repatriation of money they have earned outside of India. It is worth noting that the TDS on the sale of property by NRI below 50 lakhs is the same as above 50 lakhs The NRI would also be needed to submit Form 15CA and Form 15CB to the Bank to repatriate the money earned from the sale of property in India received outside of India. These forms must be prepared from the Income Tax Website and then submitted to the Bank. However, only a Chartered Accountant can prepare Form 15CB, while Form 15CA may be generated by either the NRI or their Chartered Accountant/Chartered Accountant. It is also necessary for the Chartered Accountant to sign and stamp Form 15CB as well.

Knowing the intricate details about TDS on the sale of property by NRI can help save a lot of money! While the basics of taxation in India and foreign countries are easy to understand, many people are more comfortable seeking professional help from tax experts. If you are looking for a tax consultant to help you guide you through the entire process, you will certainly find assistance on NoBroker. Just comment below this article and our executive will get in touch with you shortly. 

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