TAX EXEMPTION CERTIFICATE (TEC)

Introduction:

In the intricate landscape of taxation for Non-Resident Indians (NRIs) in India, one crucial aspect often encountered is the Tax Deducted at Source (TDS). Section 195 of the Income-tax Act, 1961 mandates that any ‘person’ making payments to a non-resident must deduct tax at the applicable rates during the payment process. This means that every rupee earned by an NRI in India is subject to TDS at the income tax slab rates corresponding to their income.

Challenges Faced by NRI Property Sellers: For NRIs engaged in property transactions, the stakes are higher due to the substantial TDS rates, which can be as high as 20% plus Cess & Surcharge on Long-term Capital assets and 30% Cess & Surcharge on Short-term Capital assets. This can result in a significant amount being locked in TDS, especially when there is a loss on the sale of property or the tax payable is low.

Example Scenario:

Consider a scenario where

Sale consideration is             1.00 Crore

Purchase value is                  1.10 Crore

Capital gain(loss) is               (0.10)Crore.

The resulting TDS, calculated at 30% tax plus Surcharge and Cess, amounts to 0.3588 Crore. However, the actual income tax payable is nil. This becomes a considerable concern for NRI property sellers, particularly when there is a loss on the property sale or a low tax liability.

The Solution :

Tax Exemption Certificate (TEC): Despite the mandatory TDS deduction under section 195, there exists a solution for NRIs – the Tax Exemption Certificate (TEC). NRIs can apply to the Assessing Officer (AO) for a lower or nil TDS on their income in India using Form 13. If the AO is convinced that the payee’s total income justifies a lower deduction or no deduction of income tax, they will issue a lower/nil TDS certificate.

Services Offered by NRIeCA:

NRIeCA’s expert team, comprising Chartered Accountants and Tax Professionals, specializes in obtaining Tax Exemption Certificates for NRIs across India. Our services include accurate tax computation of capital gains, tax planning, and comprehensive compliance support. We offer online guidance and clarifications for any queries that may arise.

Checklist for TEC Application:

To facilitate the TEC application process, our team requires the following documents/information:

1. Income Tax Login details of NRI/Foreign Citizen.

1. Registration on the Lower TDS Application Portal (TRACES).
2. Sale Agreement with Buyer (Duly stamped and signed).
3. TDS Account Number (TAN) & TAN Letter of Property Buyer.
4. Copy of Passport of NRI/Foreign Citizen Seller (along with the latest internal pages).
5. Circle Value of the property being sold (documentary evidence or website reference).
6. Property purchase and cost improvement-related documents.
7. Buyer PAN and Aadhar Copy.
8. Indian Bank Account statements.
9. Income Tax Return Copy for the latest 3 years.
10. Tax Record – 26AS for the latest 3 years.
11. Estimated income computation for the FY certified by Self/Authorized person.

Time Frame for Obtaining TEC:

The time frame for obtaining a TEC depends on the clarity of documents submitted to the AO with the Form 13 application, usually taking 45 days. However, there is no statutory time limit, and it is at the AO’s discretion. To expedite the process, it is recommended to compile documents carefully and address any explanations promptly.

Conclusion: Navigating the complexities of TDS for NRIs in property transactions requires strategic planning and expert guidance. NRIeCA stands as a reliable partner, offering tailored solutions and efficient support to ensure optimal tax outcomes for NRIs in India.