Site icon ECO PACK

NRI – TDS on the sale of Property in India and Repatriation

ECOPACKINDIA

TDS – NRI-182 days-

When there is a purchase of immovable property, the buyer needs to deduct tax (TDS) from the Sale value, pay the balance amount to the Seller, and pay the TDS amount to the Government.

As per the Indian Income Tax Act, when a resident purchases any property from a Non-Resident, he has to deduct tax and pay the balance amount to the Nonresident (Seller).

1. Applicable TDS rates – TDS is to be done as per provisions of Section 195.

2. In case of

The effective TDS rates in case of ‘Long Term Capital Gain’ are calculated as under:

ParticularsEffective TDS rate
Income is less than INR 50 LakhsIncome is INR 50 Lakhs to INR 1 CroreIncome is more than INR 1 Crore
Long Term Capital Gain Tax Rate20%20%20%
Add – Surcharge0%10% (on above rate)15% (on above rate)
Total Tax including surcharge20%22% (20% + 2%)23% (20% + 3%)
Add – Health and education cess4%4% (on above rate)4% (on above rate)
Effective TDS Rates20.80%22.88%23.92%

The surcharges shall be subject to marginal relief.

2. LOWER RATE OF TDS

There is also a provision to deduct TDS at a lower rate in case of the purchase of property from NRI for which the following steps need to be followed:

3. AMOUNT ON WHICH TDS IS TO BE DEDUCTED

This depends on two situations

1. When the Seller has obtained a certificate of Lower deduction of TDS, the following process needs to be done:

1. When the seller has not obtained the certificate of Lower deduction of TDS:

In this case, the TDS is to be deducted from the total Sale Price instead of Capital Gain. So the seller needs to obtain the Certificate from the Income Tax officer to lessen the Tax burden.

4. TIME OF DEDUCTION

Earlier of the following:

1. At the time of payment; or

2. At the time of credit of income.

5. TDS Payment and Return

QuarterQuarterly Return- Due Date TDS Certificate
Apr-June31st July15th August
July- Sep31st Oct15th November
Oct- Dec31st January15th February
Jan- Mar31st May15th June

Notes:  A) In this case It is mandatory for the buyer to obtain TAN (Tax Deduction And Collection Number).

B) The seller (NRI) can avail exemption benefits on Long-term capital gain under section 54 and section 54EC.

C) To repatriate the money outside India, the NRI would also be required to submit Form 15CA & Form 15CB to the Bank. These forms are required to be generated from the Income Tax Website and then submitted to the Bank.

D) Form 15CA may be generated by the NRI himself or by his Chartered Accountant but Form 15CB can only be generated by a Chartered Accountant. The Chartered Accountant is also required to sign and stamp the Form 15CB

E) The applicable interest provisions for non-deduction or non-payment of TDS is explained here under –

ParticularsAmount of interest payable
Non-deduction of TDS (either wholly or partly)1% per month from the date on which TDS is deductible to the date of actual deduction.
TDS deducted, however, not deposited (either wholly or partly)1.5% per month from the date of deduction to the date of payment.

If NRIs sell their property located in India after retaining it at least for two years, they are liable to pay Long-term Capital Tax at the rate of 22.88%. However, this tax rate can be lowered or cut down with the help of TDS deductions available under the IT Act, of 1961.

Under the Income Tax Act, of 1961, Tax Deducted at Source or TDS deduction is the tax paid by the receiver of goods and services on the overall transfer amount from the provider, under certain situations. The framework for TDS deductions is reasonably clear when it comes to domestic transactions. However, there is a fair amount of confusion about tax imposition for non-resident Indians who want to sell any property that they may have in India. This article explores how much income tax is payable and TDS deductions in the case of NRIs who want to sell property in India.

NRIs who are selling house property situated in India have to pay capital gain tax. The tax that is payable on the profit depends on whether it is a short-term or long-term capital gain.

What is a capital gain on property sold by NRIs?

The property held by an NRI seller is categorized as a “Capital Asset”, which can be a long-term capital asset or a short-term capital asset. When a property is sold after two years from the date it was owned – it attracts long-term capital gain tax. In case it is held for less than two years or less, it attracts short-term capital gain tax.

Long-term capital gains shall be implied with a concessional rate of 20% on the sale value whereas the short-term capital gains shall be implied at the regular tax slab rate which is 30% on the sale value.

Capital gains for NRIs selling property

Capital gains = Sale Consideration – Cost of Acquisition. (purchase cost to NRI). NRIs selling property in India have to get their capital gain computed by the income tax officer. Once the NRI seller procures this report from the assessing officer, they must furnish the same to the buyer who may then subtract the 20% on the capital gain value.

If Non-Resident Indians sell their property located in India after retaining it at least for two years, then they have to pay a long-term capital gain tax at the rate of 22.88%, under Section 195 of the Income Tax Act, 1961. However, NRIs can lower this TDS deduction with the help of exemptions and deductions available under the same Act. According to Section 197, every buyer who purchases property from an NRI seller needs to deduct a TDS at the rate of 22.88% on gross sales proceeds. In such a situation, first paying TDS at the rate of 22.88% and then claiming the refund after filing an income tax return, which may take months, would be tedious.

Instead, NRI sellers can avail of a lower or No TDS Deduction Certificate by applying for Form 13 online from the Income Tax Department in case their actual tax rate is lower than 22.88%. This will help NRIs to save themselves from the hassle as well as avoid locking their money through TDS Deductions at the rate of 22.88% of the sales proceeds for months.

It is advisable to apply for a low or no TDS Deduction Certificate under Section 197 of the Income Tax Act, as soon as one finds a prospective buyer and the sale value of the property is fixed.

The Income Tax Department may ask for the following documents to issue a Nil or Lower Tax Deduction Certificate.

An NRI seller can also apply for a lower tax deduction. This can be done by deducting TDS only on capital gains. As per Section 195 of the Income Tax Act, the TDS will be calculated only on capital gains, instead of calculating on the total sale value. This can help NRIs to arrive at 1% or 2% TDS, and in some cases, even No TDS is required if there is no actual gain reflected in calculations. Moreover, NRIs can also save on TDS by reinvesting capital gain amounts in another property in India within two years from the sale.

They can also invest the amount in tax-free bonds within six months from the date of sale.

NRIs can save on TDS by making wise moves at the time of property sale and even after receiving the proceeds. It is important to stay informed and check income tax regulations related to long-term and short-term capital gain tax before making such a sale.

  1. Login in TRACES and under ‘My Profile Tab’, register DSC of the authorized person;
  2. Under the ‘Statements / Form’ tab select ‘Request for Form 13’.
  3. Form 13 would be displayed and the following appropriate details need to be filled up by the applicant –

icer, on an application made on this behalf, would issue a certificate for lower or nil deduction of TDS. Based on the certificate, the deductor would either deduct the TDS at lower rates or would not deduct the TDS at all. An application for lower or no deduction of TDS is to be done in FORM 13. The Central Board of Direct Taxes, vide notification no. 8/2018 dated 31st December 2018, has provided the procedure for the electronic filing of FORM 13 online and generation of the certificate through TRACES. The electronic filing procedure of FORM 13 is discussed in the present article.

Form 13 Online Filing & Generation

  1. Registration in the TRACES portal is mandatory. Consequently, if the taxpayer is not registered in TRACES, then, one needs to first obtain registration in TRACES. For registration in TRACES please follow the undermentioned steps:
  1. Login in TRACES and under the ‘Statements / Form’ tab select ‘Request for Form 13’;
  2. Form 13 would be displayed and appropriate details need to be filled up by the applicant; and
  3. Once all the details are filled up and appropriate documents are uploaded, the applicant is required to submit Form 13 either by using Digital Signature or by using EVC.

Generation of Certificate

Other Related Guides

Form 13Form 13 – Income Tax Application by a person for a certificate under sections 197 and/or 206C(9) of the Income-tax Act, 1961, for no *deduction/colle…

1. Introduction

Considering the tendency of taxpayers to adopt tax evasion measures, Income tax provisions provide for deduction of tax at source/collection of tax source. Tax rates for such deductions are provided under Section 192, Section 194 and 195(non-residents). The person responsible for making the payment is entrusted with the responsibility of deducting the tax at specified rates either at the time of credit in the books or payment to the recipient, whichever is earlier and only pay the balance amount to the recipient. This ensures tax is collected in advance, checks tax evasion, and also helps track the income of recipients in the future. However, this scheme of deducting tax at the source itself may create hardship for few taxpayers who may not have a taxable income at all. Such scenarios could arise where:

The above could result in the taxpayer not having any taxable income at all for the year. While TDS rates are determined in general considering a larger income population as a whole and income category, it might lead to undue difficulties for certain taxpayers as above who would not have any taxable income yet tax gets deducted at source for them which they end up claiming as a refund. No doubt these taxpayers are eligible for an interest on such a refund, funds unnecessarily get blocked till the refund is received. Moreover, they have to go through the process of filing their return to claim it (in a case where it was not otherwise mandatory for them to file it under the law). Therefore, to remove this undue hardship on such taxpayers, the income tax law provides for an option to obtain a certificate from the Assessing officer confirming either a lower rate of TDS compared to the rate specified under the law or a NIL rate of TDS, depending on facts and circumstances of each case based on the application made. Section 197 governs these provisions. In this article, we will discuss provisions for applying for a certificate for a lower deduction of TDS.

2. Income Covered Under Section 197

Section 197 application can be made by the recipient of income in case of the following category of receipts where TDS is required to be made under the following Sections:

3. Eligibility for Making an Application Under Section 197

Application can be made where the income of any person attracts TDS as per above mentioned sections and the income of the recipient justifies non-deduction or lower deduction of income tax based on his estimated final tax liability.

4. Timeline for Making the Application

The income-tax provision does not provide for a deadline to make an application under Section 197. However, as TDS is made on the income of ongoing financial year it is advisable to make an application at the beginning of the financial year in case of regular income throughout the financial year and as and when the need arises in case of one-off incomes.

5. Procedure for Making the Application Under Section 197

Online application can be made by logging in to TRACES.

6. The Validity of an Application Made Under Section 197

Section 197 is issued for a particular financial year and stands valid from the date of issue and throughout the financial year unless cancelled by the assessing officer (TDS) before the expiry.

7. Documents to be Submitted with Form 13

Once the application is complete in all aspects and is submitted to the jurisdictional assessing officer (TDS), the application shall be disposed of within 30 days from the end of the month in which such application is received.  The Assessing Officer will review the documents/information submitted and may ask for further queries and documents before issuing the certificate/rejecting the application.

8. Sample Form 13

9. Section 197A

While Section 197 application can be made by any person including corporates, in case of certain specified income category, resident individuals/any person not being firm or company as the case may be, may also submit a self-declaration in specified forms (Form 15G/Form 15H) for non-deduction of TDS.

Exit mobile version