Overview of TDS on Sale of Property by NRI

This article details the applicability of TDS on Sale of Property to NRI real estate in India. This article explains the following topics in detail:

1. Applicability of TDS to NRI real estate sales
2. What is the TDS tax rate for NRI real estate sales?
3. TDS deduction amount
4. TDS payment, TDS refund, and TAN number.
5. Things sellers need to pay attention to.
6. Things buyers need to pay attention to.
7. How to avoid double taxation on real estate sales by NRI sellers in 2 countries/regions
8. Returning NRI funds outside India
9. Reduce your TDS obligations by submitting Form 13

Applicability of TDS on Sale of Property by NRI properties:

When buying/selling properties, TDS on Sale of Property by NRI must deduct. When paying the seller, the buyer deducts the amount (technically called TDS) and pays the balance until the buyer deducts the amount for the buyer to declare to the income tax authority.

The amount deducted depends on the seller’s living conditions, India- The number of TDS to deduct 1% of the selling price. If the seller NRI, the number of TDS to deduct based on the amount received by the seller.

When calculating the number of TDS to deduct, the buyer’s residency status non calculated, only the seller’s residency status consider.

If the seller is an Indian resident, the form and amount of the TDS withholding tax are detailed here-the TDS for an Indian resident when selling a property is 1%. 

If the seller NRI, the form and amount of TDS withholding tax display below.

What is the TDS tax rate for NRI real estate sales?

The TDS amount when selling an NRI property should deduct according to the following ratio:

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

Additional fees and taxes will also apply to the above amounts:

Therefore, in the case of long-term capital gains, the effective TDS tax rate for the sale of NRI real estate is as follows:

	Particulars	Property Sale Price (Rs.)	Property Sale Price (Rs.)	Property Sale Price (Rs.)
		Less than 50 Lakh	50 Lakhs to 1 Crore	More than 1 Crore
	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 (incl. Surcharge & Cess)	20.8%	22.88%	23.92%

	Particulars	Property Sale Price (Rs.)	Property Sale Price (Rs.)
	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 (incl. Surcharge & Cess)	26%	28.496%

In the case of short-term capital gains (that is if the property has been owned by the seller for less than 2 years), the surcharge and these expenses will be added to the applicable tax rate according to the income tax schedule. This is the explanation. 

This TDS deducts every time the NRI paid for the purchase of a property, and even if the advance payment for the purchase of the property, the TDS must also deduct.

It must deposit by the buyer in the income tax office, showing that TDS deduct from the payment to the NRI.

In addition, regardless of the transaction value of the real estate, this TDS must be deducted when purchasing NRI real estate, even if the value of the real estate is less than 5 million, this TDS must also be deducted.

TDS deduction amount:

According to Article 195, the TDS for NRI property sales should ideally be deducted from the capital gains. However, the seller cannot calculate capital gains. It must be done by a tax inspector.

Sellers must submit a Form 13 application to the income tax authority and require them to calculate capital gains. The process of submitting this form is a bit complicated, and the seller can apply to the income tax authority through a chartered accountant.

The income tax department calculates the seller’s capital gains and issues a zero/negligible certificate based on the capital gains from the sale of the real estate. 

The seller must give this certificate to the buyer and the buyer. You will withhold TDS at the tax rate shown on your income tax return. 

If the seller does not receive this certificate from the income tax office, the TDS must be deducted from the total sales price, not from the capital gains. The seller needs to obtain this certificate from the income tax officer. 

It is recommended to include the details of the withholding TDS in the purchase agreement of the property. It is also important to note that this property is not the responsibility of the registrar. To ensure that TDS is retained. Even if the TDS is not withdrawn or is withdrawn by mistake, the registrar will register the sales contract. 

If the TDS is incorrect or not deducted, the income tax department will not take any action against the seller but will contact the buyer to submit the TDS. If the buyer forgets to deduct the TDS or the deducted TDS is less than the TDS, the income tax department will charge the buyer TDS.

TDS payments, TDS refunds, and TAN numbers :

There are many requirements to consider when buying a property from NRI. First, the buyer must have a TAN number to retrieve TDS. However, if the property is purchased from an Indian resident and the property is purchased from a non-Indian resident owner, the property is mandatory.

There is this TAN No. Not the seller and different from PAN No. If the buyer does not have a TAN number, he must apply before deducting TDS. It should be noted that if there are two buyers, they must apply for a TAN number.

The TDS deducted by the buyer in this way will be deposited with the income tax authority within 7 days of the end of the month in which the TDS is deducted. Example: If the TDS is deducted in June, the TDS must be deposited in the income tax office by July 7 at the latest. 

This TDS must be deposited in Challan Nr./ITNS 281 and can be deposited online or through various bank branches. : https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

After the TDS deposit, the buyer must submit a TDS report. This TDS report must be submitted on Form 27Q and must be submitted separately for each quarter for which TDS is deducted. The TDS extract must be submitted within 31 days after the end of the quarter in which the TDS was withdrawn. 

After submitting the TDS deposit and TDS application, the buyer must also present Form 16A to the property seller.

Things sellers should pay attention to:

Sellers should consider the following points regarding TDS retention when selling NRI properties.

• Try to obtain a certificate for calculating capital gains from the income tax department to reduce the deductible TDS.
• It may take 2-4 weeks for the income tax official to issue the TDS minimum withdrawal certificate and request various documents. Check detailed information such as purchase price, purchase date, any repair/construction costs, etc.
• If the seller is unable to obtain the certificate, TDS will be deducted from the sales value and will result in excessive deduction of TDS. The property registration documents must also be provided to the seller on the buyer’s Form 16A.
• If the seller intends to reinvest the capital gains in India, the seller can reduce its capital gains, thereby reducing TDS and tax liability.
• To choose this certificate, you can also request a refund of the excess TDS at the end of the year.
• The two businesses (ie co-owners) must submit Form 13 separately to reduce the TDS fee.

Things buyers should pay attention to:

 When buying a property from NRI, the buyer has many obligations. The buyer must: 

• Deduct the TDS at every payment, not at the time of land registration.
• The deducted amount deposited into the income tax authority following the TDS payment plan.
• The TDS declaration will also submitted to the Income Tax Department according to the TDS declaration submission schedule.
• The buyer must issue a Form 16A to the seller after the TDS declaration submitted. Form 16A is a TDS certificate to confirm that the buyer has filed the TDS.
• If TDS delays payment, monthly interest of 1% / 1.5% charged. If a TDS refund submission late, a fine of 200 rupees will be charged.
• It is imposed every day. A fine of up to 1 lakhs. For mortgage loans, TDS is deducted when paying the seller, not when paying EMI to the bank.

How to avoid double taxation when TDS on Sale of Property by NRI properties in 2 countries/regions:

Many countries/regions tax their residents’ property sales, regardless of where the property is located. Example: An NRI headquartered in the United States sells real estate in India, and both parties in the United States tax the transaction. The United States will tax the NRI in the United States, and India will tax the property in India, resulting in double taxation. 

However, to avoid double taxation, India has signed double taxation treaties with other countries. These agreements stipulate that people who pay real estate sales taxes in India can receive tax credits. Paying in India will reduce your tax liability in another country.

In this case, this must be done in the country where the tax credit is applied for. For example, if you are a U.S. NRI and you want to sell your property in India, you will need to disclose these gains/losses from the sale of the property in the U.S. tax return under Part D of Form 1040. While paying taxes to the U.S. government, you can deduct taxes paid in India because India has a double taxation treaty with the U.S.

Repatriating funds outside India by NRI:

To repatriate funds for Indian real estate sold outside India, NRI must also send the 15CA and 15CB forms to the bank. These forms must create on the income tax website and submit to the bank.

Form 15CA create by NRI itself or your auditor, but Form 15CB can only create by Chartered Accountant. The Chartered Accountant must also sign and seal the Form 15CB.

You must determine the source of the funds to repatriate and declare that all taxes on these funds are clear in India.

NRI cannot repatriate more than (USD)$1 million from India per calendar year.

(Refer: RBI Circular)

Reduce your TDS requirement by filling out Form 13:

To reduce TDS when selling NRI real estate, NRI must submit Form 13 to the income tax department to issue a zero/lower TDS deduction certificate. This helps NRI greatly reduce the liability of TDS, which is why most NRIs choose this certificate. 

However, submitting this form is challenging, so most NRIs will hire a CPA to submit this application.

If you want to get start with TDS on Sale of Property by NRI, reach out to Chartered Accountants from CA in Delhi‘s homepage