TDS on Sale of Property by NRI in 2023 [Complete Guide]

This article covers in detail the applicability of TDS on Sale of Property by NRI in India. In this article, the following topics have been explained in detail.

1. Applicability of TDS on Sale of Property by NRI
2. What is the Rate of TDS on Sale of Property by NRI?
3. Amount on which TDS is required to be deducted
4. TDS Payment, TDS Return & TAN No.
5. How to Determine whether Seller is Resident or Non-Resident in India
6. Things to be taken care of by the Seller
7. Things to be taken care of by the Buyer
8. How to avoid Double Tax on sale of Property by NRI Seller in 2 Countries
9. Repatriation of Money outside India by NRI
10. Reduce your TDS Liability by filing application in Form 13

Applicability of TDS on Sale of Property by NRI

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. This amount which has been deducted by the buyer would then be required to be deposited with the Income Tax Department by the buyer.

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 1% of Sale Price whereas in case the seller is a NRI – the amount of TDS to be deducted would depend on the quantum of money received by the seller.

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.

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:-

Surcharge and Cess would also be levied on the above amount.

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

*Earlier higher surcharge was levied if the property value was more than Rs. 2 Crores and even higher if property value was more than Rs. 5 Crores. However, in Budget 2022 – the maximum surcharge which has been levied has been capped at 15%. And therefore, irrespective of whether the property value is Rs. 1 Crores or Rs. 5 Crores or Rs. 10 Crores – the rate of TDS will remain the same i.e. 23.92% (applicable w.e.f. 1st April 2022)

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.

(PS: We also help NRI’s file Form 13 for reducing the TDS Rates and you can hire us for filing application for lower deduction of TDS through this link: https://www.charteredclub.com/services/nri-tds-certificate-lower-nil-deduction/)

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. (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 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 7^th 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. 

How to Determine whether the Seller is a Resident or a Non-Resident?

Determining the Residential Status of the Seller is an important thing to be done while doing a property transaction with NRI as the Rate of TDS to be deducted depends on whether the seller is a Resident in India or a NRI in India for Income tax purposes.

It is on the basis of the no. of days which a person spends in India that it is determined whether the Seller is Resident in India or is a Non Resident Indian. The manner of calculation has been explained in detail here in this article – https://www.charteredclub.com/residential-status/

The residential status of the seller can also be easily determined by using the Residential Status calculator prepared by the Income Tax Dept which can be accessed here – https://www.incometaxindia.gov.in/Pages/tools/residential-status-calculator.aspx

Important Points while Determining whether Seller is Resident or NRI

1. The citizenship of the country does not matter while determining whether the seller is Resident or Non-Resident in India. Even if the person is a citizen of India but staying in a foreign country, he would still be considered as a Non-Resident for Income Tax purposes. The Income Tax Act nowhere talks about Citizenship – it only talks about no. of days spent in India.
2. Even if the Seller has Indian Aadhaar Card and PAN Card, he can still be considered as a Non-Resident in India. The Residential Status is determined only on the basis of no. of days spent in India and not on the basis of Aadhaar Card or PAN Card.
3. The type of bank account of the seller also does not make any impact on the Residential Status of the Seller. Merely because a person has not converted his resident savings account to NRI Bank Accounts, he can still be considered as a Non-Resident

What if the Seller discloses that he is a Resident in India?

The main benefit of becoming a Non-Resident is that the Income earned by a NRI from outside India is not taxable in India. However, the foreign income earned by a Resident from outside India is taxable in India.

This is the main reason why people residing outside India try to maintain their NRI Status because if they become a Resident in India, they will have to pay tax in India on the Income earned from outside India as well.

Things to be taken care of by the Seller

The following points should be kept in mind by the seller with respect to the deduction of TDS on Sale of Property by NRI

1. Try to get the Certificate from the Income Tax Department for computation of Capital Gains which will lower the TDS to be deducted.
2. Several documents like Purchase Price, Date of Purchase, any expenses on Renovation/ Construction etc. would be required to be submitted along with the Form 13. The Income Tax Officer will review these documents and if he is satisfied, he will issue a certificate for lower deduction of TDS.
3. 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.
4. Apart from the Property Registration Documents, the seller should also collect Form 16A from the Buyer.
5. 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.
6. 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?)
7. 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.
8. The provisions of lower TDS Certificate apply to both NRI’s as well as OCI Card holders and OCI card holders can also avail the benefit in the same manner.

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. (Recommended Read: TDS on Property purchased on Home Loan).
8. The TDS would be deducted as per the above schedule on advance payments as well. TDS as per the above schedule would be applicable on all payments made before the issuance of the Lower TDS Certificate.

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.

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. 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/services/nri-tds-certificate-lower-nil-deduction/