TDS on Sale of Property by NRI: A Comprehensive Guide 🏡💰

When a Non-Resident Indian (NRI) decides to sell property in India, it triggers specific tax implications under the Income Tax Act, 1961. One of the key aspects to navigate is Tax Deducted at Source (TDS) under Section 195. It’s crucial to note that TDS is applicable only on the capital gain arising from the sale and not on the total sale proceeds. However, the actual calculation of capital gains is determined by the Income Tax Officer and not by the buyer or seller.

Key Points to Remember 🔑

1. Capital Gain Calculation

   • Only the Income Tax Officer can compute the capital gain. Neither the buyer nor the seller has the authority to do so.

2. TDS Without Certificate

   • If no certificate for lower TDS is obtained, TDS must be deducted on the entire sale amount based on the applicable tax rates (including surcharge and cess).

3. TDS on Every Payment

   • TDS needs to be deducted on each installment made to the NRI seller, regardless of the payment size.

4. Excess TDS Refund

   • Any excess TDS deducted can be claimed as a refund by the NRI when filing their Income Tax Return (ITR).

5. Section 206AA Exemption

   • This section mandates higher TDS for transactions without PAN. However, it does not apply to NRIs as per government notifications.

6. Form 15CA & 15CB

   • These forms may be required for compliance before remitting payment to the NRI seller.

TAN Requirement for TDS 📑

• TAN (Tax Deduction Account Number) is mandatory for the buyer when deducting TDS.
• In case of multiple buyers, each must obtain a separate TAN.
• TDS should be deducted only after obtaining the TAN on every payment made to the NRI seller.

TDS Applicability on Sale of Property by NRI 💸

The buyer is responsible for deducting TDS before making any payment to the NRI seller. The TDS rate depends on the type of capital gain:

1. Long-Term Capital Gains (LTCG)

• Applicable When: Property is held for more than 2 years.
• TDS Rate: 12.5% (plus surcharge and cess).
• Note: From FY 2024-25, NRIs will not be eligible for the indexation benefit on the cost of acquisition of capital assets.

2. Short-Term Capital Gains (STCG)

• Applicable When: Property is held for 2 years or less.
• TDS Rate: Based on the NRI’s applicable tax slab rate.

Buyer’s Responsibilities 📝

The buyer must:

1. Deduct TDS from the sale price.
2. Deposit TDS with the government using Challan ITNS 281.
3. File Form 27Q (TDS return) within the due date.
4. Provide Form 16A (TDS certificate) to the NRI seller as proof of deduction.

Lower or Nil TDS Certificate 📄

• Form 13: NRIs can apply for a Lower/Nil TDS Certificate if their tax liability is lower than the standard TDS.
• The Income Tax Officer will calculate the capital gain and issue a certificate indicating the amount chargeable to tax.

Claiming a TDS Refund 🔄

If the NRI seller has paid excess TDS, they can claim a refund by:

1. Filing an Income Tax Return (ITR-2 or ITR-3) in India.
2. Declaring the actual capital gain/loss and availing exemptions under sections like 54 (reinvestment in residential property) or 54EC (investment in bonds).
3. Receiving a refund if TDS deducted exceeds the actual tax liability.

Key Compliance and Timelines ⏰

• TDS Deposit Due Date: 7th of the following month after deduction.
• TDS Return (Form 27Q): End of each quarter.
• TDS Certificate (Form 16A): Within 15 days after filing Form 27Q.
• ITR Filing Due Date for NRIs: 31st July (unless extended).

Conclusion ✅

TDS on the sale of property by NRIs involves multiple tax regulations and compliance requirements. Both buyers and sellers must be aware of their obligations to avoid penalties and ensure smooth transactions. NRIs should explore exemptions and rebates to optimize their tax liability while ensuring accurate documentation and timely filing of returns.