Whenever an NRI receives any payment, TDS is required to be deducted on such payments. The person who is making the payment to the NRI deducts some amount (technically called as TDS) and makes the balance payment to the NRI.

This TDS is then deposited with the Income Tax Dept as tax on behalf of the NRI. However, in some cases what happens is that the TDS Deducted is much more than his actual tax liability.

In such cases, where the TDS Deducted is more than the actual tax liability, the NRI has 2 options:-

  1. Claim Refund of the excess TDS Deducted by filing for Refund at the time of filing of Income Tax Return which is done after the financial year is complete
  2. File an application with Income Tax Officer for Lower Deduction of TDS

This can be explained with the help of an example. For eg: An NRI is selling his property based located in India for Rs. 90 Lakhs. The Capital Gains on sale of this property is Rs. 20 Lakhs. The Capital Gains tax rate is 20.8%

Options available to NRI

Particulars

Option 1: Claim Refund at the end of Year

Option 2: File application for Lower Deduction of TDS

Sale Price

Rs. 90 Lakhs

Rs. 90 Lakhs

Capital Gains

Rs. 20 Lakhs

Rs. 20 Lakhs

Capital Gains Tax @ 20.8%

Rs. 4.16 Lakhs

Rs. 4.16 Lakhs

TDS Deduction

Rs. 20.59 Lakhs

(Sale price is more than 50 Lakhs, therefore TDS rate is 22.88%.)

Rs. 4.16 Lakhs

(Equivalent to Capital Gains Tax so that there is no amount payable/ refundable at the end of the year)

Refund Due

Rs. 16.43 Lakhs

0

 

If the above calculations are not clear to you, I would recommend you to read this article in detail before proceeding further – TDS on Sale/ Purchase of Property by NRI

The practical analysis of both these options has been discussed below.

Option 1: Claim Refund at end of Year

Under the 1st option of claiming refund at the end of the year, the amount of Rs. 16,43,200 gets stuck with the income tax dept which is claimed as a refund at the end of the year.

Now, if the property is being sold say in Sept 2021, then the ITR would be filed after the end of FY 2021-22. The ITR would be filed in the month of July 2022 and it will take atleast 6 months for the refund to be processed. So, you can expect the refund to be processed anytime after Dec 2022.

However, what is important to note here that 6 months is the bare minimum time which would be taken to process the refund. The reason for such a long time is that first the income tax dept will process smaller refunds and then they will start processing bigger refunds.

If it was a refund of less than Rs. 5 Lakhs, the refund would have been easily processed. However, for bigger refunds like the one discussed above – it will take time for the income tax dept to process the refund.

Moreover, as the refund amount is huge – the income tax dept may also like to verify all the documents and may send a scrutiny notice for the same. In case a scrutiny notice is issued, it will delay the refund by some more time. Apart from the time consumed, replying to scrutiny notices is a cumbersome process and therefore most NRI’s prefer not to opt for Option 1 and rather opt for Option 2 which has been explained below.

Option 2: Apply for Certificate for Lower Deduction of TDS

The 2nd option available to the NRI is that before selling the property, he himself files an application with the income tax officer for lower deduction of TDS. Along with this application, he would also be required to submit all supporting documents required for the computation of capital gains.

This basically is a pre-assessment wherein the NRI is requesting the income tax officer to verify everything and issue a certificate for lower deduction of TDS. If everything is found to be in order, the assessing officer will issue a certificate for lower deduction of TDS in such a manner that there is no tax payable or refundable by the NRI.

The NRI can go back to his country of residence without worrying about the refund or any future scrutiny notices.

Various supporting documents would be required to be submitted and it will take the assessing officer atleast 15-30 days for verifying the docs and issuing the certificate for lower deduction of TDS. This application is filed online and the certificate is also generated online itself.

Which option should the NRI opt for?

The option of applying for certificate for Lower Deduction of TDS is certainly a better option as the NRI is getting all the money right now and does not have to worry about refund. As he has already opted for pre-assessment while filing the application for Lower Deduction of TDS, he also does not have to worry about any future scrutiny notices. He can easily repatriate the funds to his bank account in other country without any hassle immediately after selling the property.

However, the NRI should make sure that he files the application atleast 15-30 days before selling the property as the income tax officer will take this much time for verifying the documents.

Our expert team provides led by CA Karan Batra provides CA services for both the options. Additional details about both the type of services are provided in these links:-