Applicability of TDS on Sale of Property by NRI

Whenever any property is purchased/sold, TDS is required to be deducted. When paying the amount to the seller, the buyer will deduct some amount (technically called TDS) and pay the balance to the seller. This amount the buyer has deducted would then be required to be deposited with the Income Tax Department by the buyer. The amount to be deducted would depend on the residential status of the seller. If the seller is a resident Indian, the amount of TDS to be deducted would be 1% of the Sale Price, whereas if the seller is an NRI, the amount of TDS to be deducted would depend on the quantum of money received by the seller. The residential status of the seller would be considered and not the buyer for computing the amount of TDS to be deducted. The manner and amount of deduction of TDS in case the seller is a Resident Indian has been explained in detail here – TDS @ 1% on the property sale by Resident Indian. If the seller is an NRI, then the manner and amount of TDS deduction have been explained in detail below.

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. Please note that Surcharge and Cess would also be levied on the amount:

What is Rate of TDS on Sale of Property by NRI?

Therefore, the effective rate of TDS on sale of property by NRI in case of Long Term Capital Gains would be as follows:

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 Dept 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 Dept 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 chartered accountant for filing an application with the Income Tax Dept.

The Income Tax Department will compute the Capital Gains of the seller and will issue a certificate for Nil/ 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 Dept will recover the TDS from the buyer.

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 Dept 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 June, then the TDS should be deposited with the Income Tax Dept on or before 7th July.

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.

After the deposit of TDS, the buyer is required to furnish a TDS Return. This TDS Return is required to be furnished in Form 27Q 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.

Things to be taken care of by the Seller

Try to get the Certificate from the Income Tax Department for computation of Capital Gains which will lower the TDS to be deducted.

1. The Income Tax Officer may take around 2 to 4 weeks to issue to certificate for lower deduction of TDS and will ask for various documents for checking details like Purchase Price, Date of Purchase, any expenses on Renovation/ Construction etc.
2. In case the Seller is unable to get the Certificate, the TDS would be deducted on the Sale Value and will lead to excess deduction of TDS.
3. Apart from the Property Registration Documents, the seller should also collect Form 16A from the Buyer.
4. The seller can reduce his Capital Gains which will lead to lesser TDS and Tax Liability if the seller intends to reinvest the Capital Gains in India.
5. In case the seller does not opt for this certificate, he can also apply for Refund of the excess TDS deducted at the end of the year. (Recommended Read: Should NRI’s opt for Refund or Certificate for Lower Deduction of TDS?)
6. In case there are 2 sellers (i.e. Co-owners), both of them would be required to file Form 13 separately for reducing the TDS Rates.

Things to be taken care of by the Buyer

There are a lot of responsibilities of the Buyer in case of purchase of property from a NRI. The buyer shall:-

1. Deduct TDS at the time of each payment and not at the time of Registration of Property
2. The TDS so deducted shall be deposited with the Income Tax Dept as per the schedule for deposit of TDS.
3. TDS Return shall also be furnished with the Income Tax Dept as per the schedule for filing of TDS Return
4. The Buyer shall also issue Form 16A to the seller after filing the TDS Return. Form 16A is a TDS Certificate which states that the buyer has deposited the TDS with the seller.
5. In case of late payment of TDS – interest would be levied @ 1%/1.5% per month
6. In case of late filing of TDS Return – Penalty of Rs. 200 per day would be levied. The Income Tax Officer may also levy a penalty of upto Rs. 1 Lakhs.
7. In case of Home Loan, TDS is to be deducted when payment is made to the Seller and not when the EMI is paid to the Bank

How to avoid Double Tax on Sale of Property by NRI in 2 Countries

Many Countries levy Tax on sale of property by their Residents irrespective of the location of the property. For eg: An NRI residing in US sells property in India, then both US and India will levy Tax on this transaction. US will levy tax because the NRI is residing in US and India will levy tax because the property is located in India leading to double taxation.

However, to avoid levy of double taxes, India has entered into Double Taxation Avoidance Agreements with several countries. These agreements state that if a person has paid Tax on sale of property in India, then he can get a tax credit of the taxes paid in India which will reduce his tax liability in the other country.

Proper Disclosures are required to be made in this case in the country where the tax credit is being claimed. For instance, if you are an NRI based in the US and you sell your property in India, you would be required to declare such gains/losses on sale of property in your US Tax Return under Section D of Form 1040. And while paying taxes to the US Govt, you can deduct the taxes paid in India since India has a Double Taxation Avoidance Agreement with United States.

Repatriation of money outside India by NRI

To repatriate the money outside India received on sale of property in 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.

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

In these forms, various disclosures including the source of funds to be repatriated is required to be made along with declaration that all taxes have been paid on such funds in India.

NRI’s are allowed to repatriate a maximum of $1 Million (USD) outside India per calender year. (Refer: RBI Circular)

Reduce your TDS Liability by filing application in Form 13

To reduce the TDS on Sale of Property by NRI, the NRI is required to file an application in Form 13 with the Income Tax Department for issuance of Certificate for Nil/ Lower Deduction of TDS. This Certificate helps the NRI’s in reducing the TDS Liability to a great extent and therefore, most NRI’s opt for this certificate.

However, filing this form is a complicated task and therefore most NRI’s hire a Chartered Accountant for filing this application. You can avail our services for filing application for Nil/Lower Deduction of TDS.

Details Required for Filing Form 27Q

Following features are required to file Form 27Q:

In case of non-availability of PAN with NRIs, additional details of NRI such as Tax Identification Number (TIN), Permanent Address, Country of residence, Email and Contact details are needed to be furnished in Form 27Q.

Due Date for Filing Form 27Q

The due date for Payment of TDS deducted on salary for every month is seventh of the next month. For March, it is thirtieth April of the next year. The due date for filing the Form 27Q for every quarter is as follows:

Some more details about 27Q

Statistics of Vouchers

All transactions, whether recorded correctly, inadequately or incorrectly will be captured and categorised in the Form 27Q as follows:

Included Transactions

Transactions considered as included for generating form 27Q are given here:

• Booking entries with or without TDS deduction
• TDS deduction entries
• Advance payments made to parties
• TDS adjustment entries in the case of government entities
• Entries accounting for TDS reversals and TDS deduction concerning escalations and de-escalations

Excluded Transactions

Transactions considered as Excluded for generating Form 26Q is explained in detail below:

• All entries where TDS is not applied
• Entries recorded using any of the following Voucher Types:
• Payment
• Contra
• Inventory Vouchers
• Sales Order
• Purchase Order
• Debit Note (recorded for purchases with no TDS implications)
• Credit Note (entries with no TDS implications)
• Vouchers marked as Optional
• Payroll Vouchers

Uncertain Transactions

These transactions do not fulfil the criteria of the Included and Excluded categories. The transaction will be listed as Uncertain when there is insufficient information entered in:

• Masters
• Transactions

Deduction Details

This section denotes the type of deduction under which each of the included transaction is grouped. Deduction details are classified into the following types:

• Deduction at Normal Rate
• Deduction at Higher Rate
• Lower Rated Taxable Expense
• Zero Rated Taxable Expense
• Under Exemption Limit
• Except instead of PAN Available

The tax-deductible, assessable value and the tax deducted for transactions grouped in the above categories are displayed here.

Payment Details

This will contain the statistics of all TDS payments (deemed or actual) that exist in the data till date. This will not contain any of the payment entries that are not related to the current period. Any payment entries are other that TDS payment entry will not appear here.

This section will display the payments against two fields:

• Included Transactions
• Excluded Transactions