Blog

TDS ON SALE OF PROPERTY BY NRI IN 2022

TDS ON PURCHASE OF PROPERTY FROM NRI SECTION 195

This article provides detailed information on the application of TDS on the sale of property by NRIs in India. The following topics are described in detail in this article.

IMPOSITION OF TDS ON SALE OF PROPERTY BY NRIS

TDS must be deducted whenever any property is bought/sold. The buyer will pay the seller the remaining amount by deducting some amount (technically called TDS) when paying the seller. The amount deducted by the buyer must then be credited to the income tax department by the buyer.

The amount deducted will depend on the seller's residential status. If the seller is a resident Indian - the deductible TDS amount is 1% of the sale price, if the seller is a non-resident Indian - the deductible TDS amount will depend on the amount received.

The buyer's residential status will not be considered and only the seller's residential status will be considered to calculate the amount of TDS deducted.

The method and amount of TDS deduction if the seller is a resident Indian is explained in detail here.

https://www.alltaxfin.com/blog/is-purchased-property-worth-more-than-rs-50-lakh-here-is-how-to-deposit-the-tds-amount

THE METHOD AND AMOUNT OF DEDUCTION OF TDS IF THE SELLER IS NRI IS EXPLAINED IN DETAIL BELOW.

What is the rate of TDS on the sale of property by NRI?

TDS on sale of property by NRI must be deducted at the rates mentioned below: -

Surcharge and cess will also be levied on the above amount.

Therefore, in the case of long term capital gains, the effective rate of TDS on the sale of assets by NRIs will be as under:

In case of short term capital gains (i.e. if the property is held by the seller for a period of fewer than 2 years), this surcharge and cess will be added to the applicable tax rate as specified in the income tax slab.

This TDS must be deducted whenever any payment is made to an NRI for the purchase of the property. Even if any advance is paid for the purchase of the property - TDS must be deducted.

The TDS buyer must submit to the Income Tax Department that this is the TDS deducted from the payment made to the NRI.

Furthermore, this TDS on the purchase of property from the NRI must be deducted regardless of the transaction value of the property. The value of the property is Even if less than Rs. . 50 lakh - This TDS must be deducted.

THE AMOUNT ON WHICH TDS MUST BE DEDUCTED

TDS on the sale of property by NRI must be deducted under section 195 and ideally deducted on capital gains. However, this calculation of capital gains cannot be done by the seller himself and should be done by the income tax officer.

The seller should submit the application in Form 13 to the Income Tax Department and request them to calculate his capital gain. The process of filling up this form is a bit complicated and the seller can hire a chartered accountant or tax consultant to apply to the income tax department.

The Income-tax department will calculate the seller's capital gain and issue a certificate to reduce the TDS to zero / less depending on the capital gain from the sale of the property.

The seller is required to give this certificate to the buyer and the buyer will deduct the TDS at the rates mentioned in the income tax certificate.

If this certificate is not obtained by the seller from the Income Tax Department, the TDS should be deducted from the total sale price and not on the capital gain. Therefore, the seller has to get this certificate from the income tax officer.

Details of the deducted TDS should be mentioned in the property sale agreement. It should also be noted that it is not the property registrar's responsibility to ensure a TDS deduction. The Registrar will register the sale agreement even if the TDS has not been deducted or deducted incorrectly.

If the TDS is wrongly deducted or not deducted, the Income-tax department will not do anything to the seller but will catch the property buyer to collect the TDS. If the buyer forgot to deduct TDS or deducted less TDS - the Income-tax department will recover the TDS from the buyer.

TDS PAYMENT, TDS RETURN AND TAN NO.

There are several rules to follow when buying property from an NRI. First, the buyer must have a TAN number for a TDS deduction. The TAN number is not required if the property is purchased from a resident Indian but it is mandatory if the property is purchased from a non-resident Indian.

TAN number is the tax deduction and collection account number. And it's different from the PAN number. Only the buyer must have this TAN number and not the seller. If the buyer does not have the TAN number, he should apply before deducting TDS. It is important to note here that if there are 2 buyers, both must apply for a TAN number.

The TDS deducted by the buyer will be credited to the Income Tax Department within 7 days from the end of the month in which the TDS is deducted. For example: If TDS is deducted in June, then TDS should be submitted to the Income Tax Department on or before 7th July.

This must be deposited along with the TDS challan number / ITNS 281 and can be deposited online as well as from various bank branches. TDS can be submitted online through this link - https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

After depositing the TDS, the buyer is required to file a TDS return. This TDS return must be submitted in Form 27Q and must be submitted separately for each quarter in which the TDS has been deducted. This TDS return must be submitted within 31 days from the end of the quarter in which the TDS is deducted.

After depositing the TDS and filing the TDS return, the buyer is also required to submit Form 16A to the seller of the property.

HOW TO DECIDE IF A SELLER IS A RESIDENT OR A NON-RESIDENT?

It is important to determine the residency status of the seller when transacting property with NRI as the deductible TDS rate depends on whether the seller is a resident of India or a non-resident Indian in India for income tax purposes.

Based on that the days a person spends in India determine whether the seller is a resident of India or a non-resident Indian.

The seller's residential status can also be easily determined using a residential status calculator developed by the Income Tax Department which can be accessed here - https://www.incometaxindia.gov.in/Pages/tools/residential-status-calculator .aspx

IMPORTANT POINTS IN DETERMINING WHETHER THE SELLER IS A RESIDENT OR A NON-RESIDENT INDIAN

1. Citizenship of the country does not matter in deciding whether the seller is a resident of India or a non-resident. Even if the person is a citizen of India and lives abroad, he/she will be considered as a non-resident for income tax purposes. Income tax law doesn't talk about citizenship anywhere - it just talks about its days spent in India.

2. Even if the seller has Indian Aadhar Card and PAN Card, he can be considered as a non-resident of India. Residence status is determined only based on days spent in India and not on the Aadhar card or PAN card.

3. The seller's bank account type also does not affect the seller's residential status. Since a person has not converted his resident savings account into an NRI bank account, he can still be considered a non-resident.

WHAT IF THE SELLER REVEALS THAT HE IS A RESIDENT OF INDIA?

The main advantage of being a non-resident is that the income earned by a non-resident Indian outside India is not taxable in India. However, foreign income earned by a resident outside India is taxable India.

This is the main reason why people living outside India try to maintain their NRI status because if they become residents of India, they will have to pay tax in India on the income earned from outside India.

THINGS FOR THE SELLER TO TAKE CARE OF

The seller should keep in mind the following points regarding deduction of TDS on sale of property by NRI

1. Try to get a certificate from the income tax department for calculating capital gains which will reduce TDS.

2. Form 13 must be accompanied by several documents such as purchase price, date of purchase, any cost of renovation/construction, etc. The income tax authorities will review these documents and issue a certificate if they are satisfied. For lower deduction of TDS.

3. If the seller fails to get the certificate, TDS will be deducted from the sale price and hence additional deduction of TDS.

4. In addition to the property registration documents, the seller must also collect Form 16A from the buyer.

5. The seller can reduce his capital gain which will result in less TDS and tax liability if the seller wants to reinvest the capital gain in India.

6. If the seller does not select this certificate, he can also apply for a refund of extra TDS deducted at the end of the year.

7. If there are 2 sellers (i.e. co-owners), both of them are required to fill up Form 13 separately to reduce the TDS rate.

8. Lower TDS certificate provisions can benefit NRIs as well as OCI cardholders and OCI cardholders in the same manner.

THINGS FOR THE BUYER TO TAKE CARE OF

The buyer has several responsibilities when purchasing a property from an NRI. By Buyer: -

1. Deduct TDS at the time of each payment and not at the time of asset registration

2. TDS deducted in this manner will be credited to the Income Tax Department as per the schedule of TDS collection.

3. The TDS return will also be submitted to the Income-tax department as per the schedule for filing the TDS return.

4. The buyer will also issue Form 16A to the seller after filing the TDS return. Form 16A is a TDS certificate stating that the buyer has paid TDS to the seller.

5. If TDS is paid late 1% / 1.5% interest will be charged per month

6. If a TDS return is filed late - Rs.200 penalty per day will be charged. Income tax officers can also impose fines up to. Rs. 1 lakh

7. In the case of a home loan, TDS will be deducted on payment to the seller and not on payment of EMI to the bank.

8. TDS will also be deducted on advance payment as per the above schedule. TDS will be applicable on all payments made before the issuance of the Lower TDS Certificate as per the above schedule

HOW TO AVOID DOUBLE TAXATION ON THE SALE OF PROPERTY BY NRIS IN 2 COUNTRIES

Many countries tax the sale of property by their residents regardless of the location of the property. For example, if an NRI living in the US sells property in India, both the US and India will tax the transaction. The US will levy tax because the NRI lives in the US and India will levy tax because the property is in India which doubles the tax.

However, to avoid double taxation, India has entered into double tax avoidance agreements with many countries. These agreements state that if a person has paid tax on the sale of property in India, he can get a tax credit for the taxes paid in India which will reduce his tax liability in other countries.

Appropriate disclosures are required in this case in the country where the tax credit is being claimed. For example, if you are a non-resident Indian living in the US and you have sold your property in India, you must declare such a profit/loss on the sale of the property in your US tax return under Section D of Form 1040. And pay taxes to the US government when paying, since India has an agreement with the United States to avoid double taxation, you can deduct taxes paid in India.

REPARTITIATE MONEY OUTSIDE INDIA BY NRI

NRIs are also required to submit Form 15CA and Form 15CB to the bank for repayment of proceeds from the sale of property in India. This form needs to be created from the income tax website and then submitted to the bank.

Form 15CA can be prepared by NRI himself or his chartered accountant but Form 15CB can only be prepared by a chartered accountant. The Chartered Accountant is also required to sign and stamp Form 15CB

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

NRIs are allowed to repatriate a maximum of $ 1 million (USD) per calendar year outside India. (Refer: RBI Circular)

REDUCE YOUR TDS LIABILITY BY APPLYING FORM 13

To reduce TDS on sale of property by NRI, NRI is required to submit an application in Form 13 to the Income Tax Department for issuance of certificate for zero / minus deduction of TDS. This certificate helps NRIs to reduce TDS liability and hence, most NRIs opt for this certificate.

However, filling up this form is a complicated task and hence most NRIs hire a chartered accountant or tax consultant to fill up the application.

You can take advantage of our services to apply a zero / minus TDS deduction. ICA & MBA Santosh Patil (our founder) will apply in person and ensure that the certificate is issued in the shortest possible time.

Regards

Alliance Tax Experts

9769201316

#nri #tdsonproperty #form13 #nripropertytds #alliancetaxexperts #taxconsultant #charteredaccountant #ca #professionals #ica #mba #TDSonpurchaseofpropertyfromNRISection195 #TDSonsaleofpropertybyNRIForm27Q #SurchargeonTDSforNRI #Section195ofincometaxAct #TDSrateonpurchaseofpropertyfromNRI #TDSwaiverforNRI