When an NRI sells property in India, the buyer must deduct TDS (Tax Deducted at Source) before making the payment. The TDS rate depends on whether the sale results in long-term or before making the payment. The TDS rate depends on whether the sale results in long-term or short-term capital gains. If the tax liability is lower than the standard TDS rate, NRIs can apply for a lower TDS certificate. Knowing these rules helps ensure a hassle-free property sale.
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What is the TDS on the Sale of Property by NRI in India?
A Tax Deducted at Source (TDS) on the sale of property by an NRI in India is deducted at higher rates compared to resident Indians. The TDS rate is calculated based on the capital gain type, which is 20% on long-term capital gains (property held for over 2 years) and 30% on short-term capital gains (property held for 2 years or less). The buyer must deduct TDS before payment to the NRI and deposit it with the government. NRIs can apply for a lower TDS certificate if actual tax liability is lower.
How Much TDS is Charged on the Sale of Property by NRI in India?
The TDS rates vary based on whether the gains are classified as short-term or long-term:
Short-Term Capital Gains (STCG): If the property is sold within two years of purchase, TDS is deducted at 30% plus applicable cesses.
Long-Term Capital Gains (LTCG): For properties held for more than two years, TDS is charged at 20% plus cesses.
For a sale amount of ₹1 crore by an NRI, TDS will be:
Particulars
Rate
Amount (₹)
Sale price
-
1,00,00,000
TDS (Tax Deducted at Source)
20%
20,00,000
Surcharge (10%)
10% of TDS
2,00,000
Health and Education Cess
4%
88,000
Total TDS
-
22,88,000
How to Deduct TDS Amount on Sale of Property?
The buyer must deduct TDS before transferring the sale proceeds to the NRI seller. Following are the steps to deduct TDS on sale of property by NRI:
Form 27Q: The buyer should use Form 27Q for TDS payment if the property is purchased from an NRI.
Obtain a Tax Deduction Account Number (TAN): The buyer must apply for a TAN for TDS deduction.
Calculate TDS: Based on the applicable rate (30% for STCG or 20% for LTCG).
Deposit TDS: Use an e-challan to deposit with the Income Tax Department by the 7th of the following month.
File TDS Return: The buyer must file a quarterly return and provide Form 16A to the seller.
How Can NRI Reduce TDS on Sale of Property in India?
Lower Deduction Certificate: Apply for a lower TDS certificate under Section 197. Submit Form 13 to the Income Tax Department before executing the sale agreement.
Assessment by Tax Officer: The officer evaluates tax liability and issues a certificate with a reduced TDS rate.
Provide Certificate to Buyer: The buyer deducts TDS at the lower rate.
What Happens if No TDS is Deducted on Sale of Property in India
If no TDS is deducted, the following scenarios may occur:
Penalty for the buyer: Buyers face penalties and interest for non-compliance.
Liability remains with the buyer: The Income Tax Department can recover unpaid TDS from the buyer.
Repatriation Issues: NRI seller may face delays or issues repatriating funds.
Tax on Gains from the Sale of a Property in India by an NRI
NRIs must report capital gains from property sales when filing their income tax returns in India. The nature of these gains determines their tax liability:
STCG: Taxed according to slab rates based on total income.
LTCG: Taxed at 12.5% with indexation benefits available.
How to Save Tax on Capital Gains by an NRI
NRIs can reduce tax liability by availing of exemptions:
Exemption under Section 54
Eligibility: Available to both residents and NRIs.
Applicability: Long-term gains from selling a residential property held for at least 24 months.
Reinvestment: Use proceeds to purchase a new property within 1 year before or 2 years after sale, or construct a property within 3 years.
Conditions: The new property must be in India and held for at least 3 years.
Applicability: Long-term gains from selling any asset other than residential property.
Reinvestment: Use proceeds to purchase or construct residential property within specified timeframes.
Conditions: Cannot own more than one residential house (excluding the new one) on the sale date. The new property must be held for 3 years.
Repatriation of Gains from Sale of Property by an NRI in India
To repatriate funds from property sales, NRIs need to:
Obtain Form 15CB: A Chartered Accountant certifies the transaction. It is required for bank approval for funds transfer abroad.
Submit Form 15CA: Submit this form to the Income Tax Department.
Submit Documents to Bank: Provide Form 15CA, 15CB, and supporting documents to the authorized bank.
Repatriation: Bank processes the transfer to the NRI’s foreign or NRE account.
Follow Limits: NRIs can repatriate up to USD 1 million per financial year after fulfilling all tax obligations.
Conclusion
When an NRI sells a property in India, TDS plays a crucial role in ensuring tax compliance. The buyer must deduct TDS at the applicable rates before making the payment. Proper documentation, correct PAN details, and timely filing of forms are essential to avoid penalties. NRIs can claim refunds if the deducted TDS exceeds their actual tax liability. Consulting a tax advisor can simplify the process and ensure adherence to legal requirements.
FAQs
What is the TDS on sale of property by NRI after 23 July 2024?
TDS is deducted at 20% for long-term capital gains and at 30% for short-term capital gains, plus applicable surcharge and cess.
What is TDS on sale of property by NRI Form 27Q?
Form 27Q is used to report TDS deducted on payments to NRIs, including TDS on property sales.
Is form 26QB applicable for NRI seller?
No, Form 26QB is only for resident sellers. For NRI sellers, Form 27Q is applicable.
How can NRI avoid TDS?
An NRI can apply for a lower TDS certificate from the Income Tax Department if their actual tax liability is less than the TDS amount.
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