NRI
What is Rate of TDS on Sale of Property by NRI?
TDS on Sale of Property by NRI is required to be deducted as per the rates mentioned below:-
Nature of Capital Gains | Description | TDS Rate on Sale of Property by NRI |
Long Term Capital Gains | Property held for more than 2 years | 20% |
Short Term Capital Gains | Property held for less than 2 years | Income Tax Slab Rates of Seller |
Surcharge and Cess would also be levied on the above amount.
Particulars | Property Sale Price (Rs.) | |||
Less than 50 Lakhs | 50 Lakhs to 1 Crores | 1 Crore to 2 Crores | ||
Long Term Capital Gains Tax | 20% | 20% | 20% | |
(Add) | Surcharge | Nil | 10% of above | 15% of above |
Total Tax (incl Surcharge) | 20% | 22% | 23% | |
(Add) | Health & Ed. Cess | 4% of above | 4% of above | 4% of above |
Applicable TDS Rate | 20.8% | 22.88% | 23.92% | |
Therefore, the effective rate of TDS on sale of property by NRI in case of Long Term Capital gain would be as follows:
Particulars | Property Sale Price (Rs.) | ||
2 Crore to 5 Crores | Above 5 Crores | ||
Long Term Capital Gains Tax | 20% | 20% | |
(Add) | Surcharge | 25% of above | 37% of above |
Total Tax (incl Surcharge) | 25% | 27.4% | |
(Add) | Health & Ed. Cess | 4% of above | 4% of above |
Applicable TDS Rate | 26% | 28.496% | |
In case of Short Term Capital Gains (i.e. if the Property has been held for less than 2 years by the seller), this Surcharge and Cess would be added to the applicable Tax Rate as per the Income Tax Slabs in the same manner as explained above for Long Term Capital Gains.
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.
This TDS is required to be deposited by the buyer with the Income Tax Department stating that this is the TDS which he has deducted from the payment made to NRI.
Moreover, this 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 – this TDS is required to be deducted.
Amount on which the TDS is required to be deducted
The TDS on sale of property by NRI is required to be deducted under Section 195 and is ideally required to be deducted on the Capital Gains. However, this computation of Capital Gains cannot be done by the Seller himself and should be done by the Income Tax Officer.
The seller shall file an application in Form 13 with the Income Tax Department and request them to compute his Capital Gains. The procedure for filing of this form is a bit complicated and the seller can take the services of a Professional for filing an application with the Income Tax Department.
The Income Tax Department will compute the Capital Gains of the seller and will issue a certificate for Lower deduction of TDS depending on the capital gains arising on the sale of property.
The seller is required to give this certificate to the buyer and the buyer will deduct the TDS as per the rates mentioned in the income tax certificate.
In case this certificate is not obtained by the seller from the Income Tax Department, 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 Income Tax Officer.
It is advisable that the details of the TDS deducted shall be mentioned in Property Sale Agreement. It should also be noted that it is not the responsibility of the Property Registrar to ensure the TDS Deduction. The Registrar will register the Sale Agreement even if the TDS is not deducted or wrongly deducted.
If the TDS is wrongly deducted or not deducted, the Income Tax Dept will not do anything to the seller but will catch hold of the buyer of property to deposit the TDS. If the buyer forgot to deduct the TDS or deducted less TDS – the Income Tax Department will recover the TDS from the buyer.
(PS: We also help NRI’s file Form 13 for reducing the TDS Rates and you can hire us for filing application for lower deduction of TDS through this link: https://www.taxnlaw.in/services/nri-tds-certificate-lower deduction/
TDS Payment, TDS Return and TAN No.
There are a lot of compliances to be taken care of when buying a property from a NRI. Firstly, the buyer should have a TAN No. for deduction of TDS. TAN No. is not required in case the property is purchased from a Resident Indian but is mandatory in case the property is purchased from a Non Resident Indian.
TAN No. 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 No., he should apply for the same before deduction of TDS. It is important to note here that in case there are 2 buyers, both of them would be required to apply for a TAN No.
The TDS so deducted by the buyer shall be deposited with the Income Tax Department within 7 days from the end of the month in which the TDS has been deducted. For example: If TDS is deducted in the month of May, then the TDS should be deposited with the Income Tax Department on or before 7th June.
This TDS is required to be deposited along with Challan No./ ITNS 281 and can be deposited online as well as through various bank branches. TDS can be deposited online.
After the deposit of TDS, the buyer is required to furnish a TDS Return. This TDS Return is required to be furnished 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 to the seller of property.