TDS on Sale of Property by NRIs after Budget 2024: Key Insights

 The tax landscape for Non-Resident Indians (NRIs) continues to evolve, and recent changes introduced in the Union Budget 2024 have made it essential for NRIs to stay updated on tax obligations, especially when it comes to the sale of property in India. One of the most crucial aspects of property transactions for NRIs is Tax Deducted at Source (TDS), which ensures timely payment of taxes.

1. Understanding TDS on Sale of Property

In India, TDS on sale of property by nri after budget 2024 is applicable when an NRI sells property, ensuring that taxes are deducted at the time of the transaction. The buyer is responsible for withholding the TDS amount and remitting it to the Indian government. The TDS rates vary based on the type of property and the status of the seller (NRI).

As per the existing norms, TDS is generally deducted at the following rates:

• Long-Term Capital Gains (LTCG): 20% (with indexation benefits)
• Short-Term Capital Gains (STCG): 30%

These rates apply when the seller is an NRI and the property sold qualifies as a capital asset.

2. Changes After Budget 2024

The Union Budget 2024 has brought some important amendments to TDS provisions, especially for NRIs selling property in India. Key highlights include:

a. Reduction in TDS Rate for Long-Term Capital Gains

The budget introduced a reduction in the TDS rate for long-term capital gains (LTCG) on the sale of property. Earlier, the rate was 20%, but the Finance Minister has now proposed a reduction to 15% for LTCG arising from the sale of real estate. This reduction aims to provide more liquidity for NRIs, offering them a better return on their investments.

b. Introduction of Section 194-IA for NRIs

Under the new provisions, Section 194-IA has been expanded to address the sale of residential property by NRIs. The section now applies uniformly to all property sales, irrespective of the location of the seller. This makes it easier for buyers to ensure tax compliance and remit the correct amount of TDS directly to the government.

c. Ease of Compliance with New Forms

Budget 2024 has also introduced simplified procedures for NRIs to remit TDS and file necessary returns. New forms, including a revised Form 26QB, will streamline the process and reduce delays. This will significantly help NRIs who often face challenges due to the complex paperwork involved in property transactions.

3. TDS on Sale of Property: Practical Implications for NRIs

a. Who is Responsible for TDS?

The responsibility to deduct and remit TDS lies with the buyer. However, NRIs need to ensure that the correct amount is deducted as per the revised provisions. For NRIs, this means that the buyer will now withhold 15% TDS on LTCG, instead of the previous 20%.

b. Impact on Property Sale Proceeds

Although the reduction in TDS is beneficial, NRIs need to remember that the deducted TDS is not the final tax liability. NRIs may still need to file an income tax return in India to report their capital gains, and the TDS amount will be adjusted against their final tax dues. If TDS is deducted more than the actual liability, they can claim a refund upon filing returns.

c. TDS on Sale of Property by NRI: Special Considerations

• Tax Treaty Benefits: If the NRI is from a country with which India has a Double Taxation Avoidance Agreement (DTAA), the NRI may be eligible to claim a reduced TDS rate under the treaty. This would require the NRI to provide a Tax Residency Certificate (TRC) and Form 10F to the buyer.
• Repatriation of Sale Proceeds: After paying TDS, NRIs must also ensure compliance with the Reserve Bank of India (RBI) regulations regarding the repatriation of sale proceeds. There are specific rules for transferring funds abroad, which should be followed meticulously.

4. Future Outlook for NRIs

The reduction in TDS rates for long-term capital gains will likely encourage more NRIs to invest in the Indian real estate market. The simplified procedures for TDS compliance and the reduction of paperwork will also improve the overall experience for NRIs, making property sales less cumbersome. The government's aim to foster greater investment from the NRI community is clear in these provisions, which align with the broader goal of improving India's economic growth.

Conclusion

For NRIs, understanding the intricacies of TDS on property sales is critical, especially after the recent changes introduced in the Budget 2024. The reduction in LTCG TDS rates and streamlined procedures will provide significant relief and encourage more investments. However, it remains important for NRIs to stay informed about their responsibilities and seek professional assistance when necessary. At Dinesh Aarjav & Associates, we offer expert advice on NRI taxation and ensure seamless tax compliance during property transactions in India.