TDS on NRI Property Sale: Key Considerations

 When a Non-Resident Indian (NRI) sells property in India, Tax Deducted at Source (TDS) is applicable on the sale transaction. The Indian government requires the buyer to deduct a certain percentage of the sale amount and remit it to the tax authorities. This ensures that NRIs meet their tax obligations in India. Below is a detailed overview of TDS on NRI property sales, its implications, and key aspects that NRIs need to understand.

What is TDS on NRI Property Sale?

TDS on nri property is a form of tax collection at the source of income. When an NRI sells property in India, the buyer is required to deduct TDS at the time of payment and submit it to the Indian tax authorities on behalf of the seller. The TDS rate varies based on whether the seller is making a long-term or short-term capital gain on the sale of the property.

TDS Rates on Property Sale for NRIs

The TDS rate applicable on the sale of property by NRIs depends on the nature of the capital gain:

1. Short-Term Capital Gains (STCG):
   If the property is sold within two years of purchase (for immovable property), the sale is classified as a short-term capital gain, and the TDS rate is 30% of the sale value.

2. Long-Term Capital Gains (LTCG):
   If the property is sold after holding it for more than two years, the sale is classified as a long-term capital gain. The TDS rate in such cases is 20% of the sale value. Additionally, a Cess of 4% on the tax amount is also levied.

TDS on Sale of Agricultural Land

In case of the sale of agricultural land, TDS is not applicable if the land is located in a rural area, as per the guidelines under the Income Tax Act. However, if the land is in a non-rural area, the TDS provisions apply.

When is TDS Deducted?

TDS on NRI property sale is deducted at the time of payment. Typically, the buyer of the property deducts the TDS at the time of making the payment to the NRI seller. This is mandatory for transactions where the property value exceeds ₹50 lakh.

Procedure for Deducting and Paying TDS

1. TDS Deduction:
   The buyer deducts TDS from the sale amount before making the payment to the NRI seller. For example, if the property is sold for ₹1 crore, and the TDS rate is 20%, the buyer will deduct ₹20 lakh as TDS.

2. Payment to the Government:
   The deducted TDS amount must be deposited with the Indian government. The buyer has to file a TDS return with the Indian tax authorities and obtain a TDS certificate (Form 16A), which is provided to the NRI seller.

3. Tax Return Filing:
   The NRI seller must file an Income Tax Return (ITR) in India for the property sale transaction, disclosing the capital gains and the TDS amount deducted. If the TDS deducted is higher than the actual tax liability, the seller can claim a refund.

Exemption and Lower TDS Rates

In certain cases, NRIs can apply for a lower TDS deduction under the Section 197 of the Income Tax Act. This section allows an NRI to apply to the Income Tax Department for a certificate that reduces the TDS rate based on their income and applicable tax provisions. The buyer will then deduct TDS at the reduced rate specified in the certificate.

Impact of Double Taxation Avoidance Agreement (DTAA)

India has Double Taxation Avoidance Agreements (DTAA) with many countries, which helps in preventing double taxation of income. Under the DTAA, an NRI may be eligible to pay tax on capital gains in their country of residence, and the TDS deducted in India can be used as a credit against taxes payable in their home country. This ensures that the NRI does not pay tax on the same income twice.

Key Documents Required

When selling property in India, NRIs need to provide several documents for the TDS process, including:

• PAN (Permanent Account Number): The NRI must have a PAN to be eligible for TDS deduction. If they do not have one, they must apply for it.
• Sale Deed: The document that proves the sale of property.
• Form 16A: TDS certificate issued by the buyer.
• Tax Return Filing Documents: To ensure that the TDS deducted is correctly reflected in the seller’s tax return.

Conclusion

TDS on the sale of immovable property by NRIs is an essential aspect of tax compliance when selling property in India. The buyer is responsible for deducting TDS at the applicable rate and depositing it with the government. NRIs must be aware of the rates, documentation requirements, and the filing of income tax returns to ensure that they are compliant with Indian tax laws. For any tax-related matters or specific queries regarding TDS on property sales, consulting a tax professional or advisor is highly recommended.

Dinesh Aarjav & Associates provides expert services for NRIs dealing with property sales and TDS compliance in India.