Comprehensive Guide to TDS on Property Sale by Non-Resident Indians (NRIs) in India

Introduction:

The deduction of Tax Deducted at Source (TDS) is a critical aspect in real estate transactions involving Non-Resident Indian (NRI) sellers. This comprehensive guide aims to provide insights into the nuances of TDS on property sales by NRIs in India, delineating the responsibilities of both buyers and sellers.

1. TDS Obligation: TDS is mandatory when an NRI sells property in India, placing the onus on the buyer to deduct tax at prescribed rates. The buyer must remit the balance amount to the seller and deposit the deducted TDS with the Income Tax Department within the stipulated timeframe.
2. Seller’s Residential Status: The seller’s residential status is pivotal in determining the TDS process. For Resident Indian sellers, the TDS rate is 1%, while for NRIs, TDS is levied at higher rates on the entire consideration amount.
3. Applicability of TDS: Unlike the buyer’s residential status, the seller’s status governs TDS liability. For a Resident Indian seller, TDS is triggered when purchasing immovable property exceeding INR 50 lakhs. However, in the case of an NRI seller, TDS must be applied under Section 195, regardless of the property’s value.

TDS Rates on Sale of Property by NRI: TDS rates on long-term capital gains vary based on the property’s sale value. For instance, rates for property sales exceeding INR 1 crore incur an effective TDS rate of 23.92%. Short-term capital gains are subject to additional surcharge and cess as per income tax slabs.(Short Term Capital Gain is considered if the Property has been held for less than 2 years by the seller)

• Long term capital gain tax if property sale value is less than INR 50 Lacs:
• • Tax rate: 20%
  • Add: Surcharge: Nil
  • Add: Cess: 0.80%
  • Effective TDS rates: 20.80%

• Long term capital gain tax if property sale value is INR 50 Lacs to INR 1 Crore:
• • Tax rate: 20%
  • Add: Surcharge: 2%
  • Add: Cess: 0.88%
  • Effective TDS rates: 22.88%

• Long term capital gain tax if property sale value is more than INR 1 Crore:
• • Tax rate: 20%
  • Add: Surcharge: 3%
  • Add: Cess: 0.92%
  • Effective TDS rates: 23.92%

Exemption and Lower TDS Facility:

NRIs facing a potential higher TDS burden can seek relief through a Tax Exemption Certificate (TEC). Filing Form 13 along with supporting documents enables sellers to justify and secure nil or lower TDS deduction.

TDS Compliance:

Buyers bear the responsibility of deducting and depositing TDS promptly. Failure to comply may result in significant penalties. NRI sellers should communicate their status and, if necessary, obtain a TEC to mitigate TDS concerns.

Compliance of TDS Payment:

Buyers must adhere to TDS payment compliance, depositing the deducted tax within seven days of the month-end. TDS returns (Form 27 Q) should be submitted quarterly within 15 days of the quarter-end. Buyers must furnish sellers with TDS certificates (Form 16 A) promptly after filing TDS returns.

Conclusion: Navigating the intricacies of TDS on property sales by NRIs requires a clear understanding of the regulatory framework. Seeking professional assistance from experts like our online team at NRIeCA can streamline the process, ensuring compliance with Indian tax laws and facilitating a seamless real estate transaction experience.