TDS on Sale of Immovable Property: Key Insights for NRIs

 The sale of immovable property in India by NRIs involves specific taxation rules under the Income Tax Act. One critical aspect is Tax Deducted at Source (TDS), which applies at the time of property transactions. Understanding these rules helps ensure compliance and avoid legal complications.

1. What is TDS on Sale of Immovable Property?

TDS is a tax mechanism where the buyer deducts a percentage of the transaction amount and deposits it with the government on behalf of the seller. For NRIs, TDS on sale of immovable property plays a significant role in property transactions as their income in India is taxed at source.

2. Applicable TDS Rates

TDS on the sale of immovable property by NRIs is deducted as per the type of capital gain:

  • Long-Term Capital Gains (LTCG): If the property is held for more than two years, TDS is 20%.
  • Short-Term Capital Gains (STCG): For properties held for less than two years, TDS is 30%.

Additionally, applicable surcharges and cess can increase the overall TDS liability.

3. Threshold for TDS

For resident sellers, TDS is applicable only if the property’s sale value exceeds ₹50 lakh. However, for NRIs, this threshold does not apply, and TDS is deducted irrespective of the transaction value.

4. Buyer's Responsibility

The buyer of the property has the responsibility to:

  • Deduct TDS at the applicable rate before making payment to the NRI seller.
  • Deposit the deducted amount with the government using Form 26QB.
  • Issue a TDS certificate (Form 16A) to the NRI seller.

Failure to comply can result in penalties for the buyer.

5. Lower TDS Certificate

To reduce TDS liability, NRIs can apply for a lower TDS certificate from the Income Tax Department. This certificate ensures that TDS is deducted only on the taxable portion of the transaction after accounting for exemptions and deductions.

6. Capital Gains and Taxation

NRIs selling immovable property can benefit from exemptions on long-term capital gains by:

  • Investing in specified bonds under Section 54EC.
  • Reinvesting in another residential property under Section 54.

However, these benefits do not eliminate TDS; they only reduce the eventual tax liability during ITR filing.

7. Claiming Refunds

If the deducted TDS exceeds the actual tax liability, NRIs can claim a refund by filing an income tax return. Proper documentation, including the sale deed and proof of deductions, is essential for processing refunds.

Conclusion

Compliance with TDS on the sale of immovable property rules is crucial for a hassle-free transaction. NRIs must understand the applicable rates, exemptions, and documentation requirements. For seamless tax planning and compliance, consult Dinesh Aarjav & Associates, experts in managing NRI property transactions and tax matters.

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