TDS on Sale of Property by NRI in India


TDS on Sale of Property by NRI in India

The process, Tax Deduction at Source (TDS) Rate and compliance are complicated when one purchases property from a Non Resident Indian (NRI) as compared to purchase of property from a Resident Indian.  In this article we will focus on TDS Deduction on purchase of property from NRI.  The crux is that TDS is required to be deducted on Capital Gains and not on the Sale Price, when purchasing a property from an NRI.

TDS % on Purchase of Property from NRI

TDS under Section 195 is required to be deducted on the Capital Gains as per the below mentioned schedule, upon purchasing a property from NRI –:-

Long Term Capital Gains (LTCG) – Property held for more than 2 years – 20%

Short Term Capital Gains (STCG) – Property held for less than 2 years –Slab Rates of Seller

Surcharge and Cess would also be levied on the above respective amounts.

This TDS is required to be deducted whenever any payment is made to the NRI for purchase of property. Even if any advance is being paid for purchase of property TDS is required to be deducted.

Further, TDS on purchase of Property from NRI is required to be deducted irrespective of the Transaction Value of the Property. Even if the value of property is less than Rs. 50 Lakhs. (In case of purchase of property from Resident Indians, TDS is not be deducted if property value is less than Rs. 50 Lakhs)

Amount subject to TDS deduction

TDS is required to be deducted on the Capital Gains only. The seller will communicate the amount of Capital Gains arising in his hands from sale of his property. The seller shall intimate the buyer of the gains arising in his hands and the buyer will deduct the TDS accordingly.

However, this computation of Capital Gains cannot be done by the Seller himself and should be as certified by the Income Tax Officer (ITO). The seller shall approach his ITO and request him to compute his Capital Gains and issue necessary certificate.

The ITO shall compute the Capital Gains of the seller and issue a certificate advising the Capital Gains. The seller is required to give this certificate to the buyer and the buyer will deduct the TDS on the Capital Gains arising to the seller.

In case this certificate is not obtained by the seller from the ITO, the TDS should be deducted on the Total Sale Price and not on the Capital Gains. Therefore, it is very important for the seller to obtain this certificate from the ITO since he will end up losing more on his sale proceeds, albeit for the time being, till he claims a credit/refund of it in his income tax returns.

It is recommended to have the details of the TDS deducted mentioned in Property Sale Agreement.

If TDS is wrongly deducted or not deducted, the Income Tax Dept will hold the buyer of property responsible to deposit the TDS and not the seller. If the buyer forgets to deduct TDS or deducts lesser TDS, the department will recover the TDS from the buyer only.

TDS Deposit, TDS Returns & TAN No.

At first, the buyer should have a TAN for deduction of TDS. TAN is not required in case the property is purchased from a Resident Indian but is required in case the property is purchased from an NRI.

TAN stands for Tax Deduction and Collection Account No. and is different from a PAN No. Only the buyer is required to have this TAN No. and not the seller. In case the buyer does not have the TAN, he should apply for the same before deduction of TDS.

After deposit of TDS deducted by buyer, he is required to furnish a TDS Return to the Income Tax Department and is required to be furnished separately for each quarter in which the TDS has been deducted. This TDS Return is required to be deposited within 31 days from the end of the quarter in which the TDS has been deducted.

After the deposit of TDS and filing of TDS Return, the buyer is also required to furnish Form 16A, which is a very important document to the seller of property to claim his tax credits.

We trust this article was useful to you.  Feel free to write to us at info@gjmco.in should you have any questions.

Thanks & Best Regards,
Knowledge Base Team

G J M & Co.
CHARTERED ACCOUNTANTS
Website - www.gjmco.in


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