Whenever any property is purchased/sold, TDS is required to be deducted. The buyer when paying the amount to the seller will deduct some amount (technically called as TDS) and pay the balance to the seller.
The amount to be deducted would be depend on the residential status of the seller. In case the seller is a resident indian – the amount of TDS to be deducted would be lower whereas in case the seller is a NRI – the amount of TDS to be deducted would be higher.
The residential status of the buyer would not be considered and only the residential status of the seller would be considered 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 in here – TDS @ 1% on sale of property by Resident Indian.
The manner and amount of deduction of TDS in case the seller is a NRI has been explained in detail below.
TDS Rate on Sale of Property by NRI
In case of sale of property by NRI, TDS under Section 195 would be deducted by the buyer as per the below mentioned schedule:-
|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|
Surcharge and Cess would also be levied on the above amount.
Therefore, the effective rate of TDS in case of Long Term Capital Gains for property sold by NRI Individual/ HUF would be as follows:
|Particulars||Less than 50 Lakhs||50 Lakhs to 1 Crores||More than 1 Crores|
|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 (w.e.f. 1.4.18)||4% of above||4% of above||4% of above|
|Applicable TDS Rate
(incl. Surcharge & Cess)
In case of Short Term Capital Gains, 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 his 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 is 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 approach his Income Tax Officer and request him 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 tax consultant/chartered accountant for filing an application to the income tax officer.
The Income Tax Officer shall 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 on the Capital Gains arising to the seller as per the TDS Rate mentioned in the income tax certificate.
In case this certificate is not obtained by the seller from the Income Tax Officer, 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 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 required 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.
- Recommended Read: What is TAN No. and procedure to apply for TAN No.
The TDS so deducted by the buyer shall be deposited with the Govt 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 Govt. 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. TDS can be deposited online through this link – https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp
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.
- Recommended Read: Procedure for filing TDS Return
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 by the Seller
The seller shall ensure the following:-
- Try to get the Certificate from the Income Tax Officer for computation of Capital Gains which will lower the TDS to be deducted.
- The Income Tax Officer may take around 30 days 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.
- 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.
- Apart from the Property Registration Documents, the seller should also collect Form 16A from the Buyer.
- The seller can reduce his Capital Gains which will lead to lesser TDS Deduction if the seller intends to reinvest the Capital Gains in India.
Things to be taken care of by the Buyer
There are a lot of things to be taken care of by the Buyer in case of purchase of property from a NRI. The buyer shall:-
- Deduct TDS at the time of each payment and not at the time of Registration of Property
- The TDS so deducted shall be deposited with the Income Tax Dept as per the schedule for deposit of TDS.
- TDS Return shall also be furnished with the Income Tax Dept as per the schedule for filing of TDS Return
- 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.
- In case of late payment of TDS – interest would be levied @ 1%/1.5% per month
- 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.
- 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. (Recommended Read: TDS on Property purchased on Home Loan).
You may also refer this video in which our founder – CA Karan Batra talks on NDTV about the manner of deduction of TDS in case of purchase of property from a Resident as well as about the TDS Deduction in case of purchase of property from a Non Resident.
Repatriation of money outside India by NRI
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.
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)
Avail our services for applying for Certificate for Nil/ Lower Deduction of TDS
You can avail our services for filing application for Nil/Lower Deduction of TDS. CA Karan Batra (our founder) will himself file the application and ensure that the certificate is issued in the least possible time. Enroll through the service through this link: https://www.charteredclub.com/service/nri-tds-certificate/
Complimentary Service: Form 15CA & Form 15CB for repatriation of funds would be offered as complimentary for all those NRI’s who enroll for the above mentioned service.