The buyer of property from the NRI has to deduct TDS
Deduction of TDS on sale of property by NRI | 2023 Guide
| Principle of Domestic Taxation | TDS (Tax Deduction at Source) |
| Type of Transaction | TDS on Sale of property by NRI – Situated in India |
| Parties to the Transaction | Property may be sold by NRI to: –
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Where a Non-resident Indian “NRI” sells a residential or commercial property situated in India, the NRI is liable to pay capital gains tax in India @ 20% on long-term capital gains and 30% tax on short-term capital gains. If the NRI is a tax resident of another country, they can claim benefit of Tax Treaty provision, if they are more beneficial than the provisions of the Income Tax Act, 1961. In this article, we have discussed various tax aspects applicable on sale of property by NRI’s, Deduction of TDS on sale of property by NRI (by the purchaser), how TDS can be reduced through application to income tax office, and the process involved in obtaining such certificate.
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Applicability of TDS on Sale of Property by NRI
Every time, a non-resident sells a property, TDS is required to be deducted by the buyer. Such a buyer may be a resident or a non-resident. The buyer will deposit such TDS to the Income Tax Department. Such TDS will appear as a tax credit in the income tax account of the seller, which he can offset against his tax liability/ or claim a refund if the total tax deducted is higher than his tax liability. The rate of TDS on sale of property by an NRI, would increase due to increase in the rate of surcharge, if the value of property increases.
Following aspects will be covered in respect of Deduction of TDS on sale of property by NRI in this Article: –
- Rate of TDS deduction
- Amount on which TDS will be deducted
- Process of obtaining lower TDS certificate from Income Tax office
- Reduction of tax on Capital Gains
Applicability of tax deduction on sale of property by NRI
TDS on sale of property by NRI would vary depending on the following aspects: –
- Sale Consideration of the property – Higher the value at which the property is sold, higher the capital gains;
- Cost of Acquisition of the property – Higher the cost of acquisition of property, lower the capital gains;
- Period of ownership of the property – The tax rate changes if the property is a long term capital asset;
- Expenditure incurred on transfer of property – This reduces the capital gains arising on sale of property;
The capital gains arising as above are taxable in India. If you want to compute the taxes on sale of property, Talk to our tax expert .
Key aspects
The provisions dealing with the deduction of TDS on sale of property by NRI, where such property is situated in India are as under: –
What is the Rate of TDS on Sale of Property by NRI
The rate of TDS depends on the period for which the property is owned by the NRI.
| Nature of Capital Gains | Duration | TDS |
| Long-term capital gains | Property held for > 2 years | 20% |
| Short-term capital gains | Property held for ≤ 2 years | 30% |
Note: The TDS computed as above, will be further increased with the Surcharge and Cess, depending on the tax slab of the seller. The effective rate of TDS for long term capital gains arising to an NRI are as under: –
| Particulars | LTCG Tax Rate | Surcharge | Total Tax | Health & Education Cess | Applicable TDS Rate |
| Sale Consideration is less than Rs. 50 Lakhs | 20% | Nil | 20% | 4% | 20.8% |
| Sale Consideration Rs. 50 Lakhs to Rs. 1 Crore | 20% | 10% | 22% | 4% | 22.88% |
| Sale Consideration above Rs. 1 Crore | 20% | 15% | 23% | 4% | 23.92% |
The surcharge rate on capital gain has been capped at 15%.
Surcharge and cess would be applicable as per income tax slabs, in case of short-term capital gains.
Amount on which TDS will be deducted
TDS on sale of property is required to be deducted on gross sale consideration. The following points should be noted in this regards
- TDS is not deducted on capital gains unless a lower withholding tax certificate is obtained ;
- TDS will be deducted on any part payment/ advance payment / full payment in respect of sale transaction of property
The procedure for deduction of TDS on purchase of property from NRI will be as per Sec 195 of Income Tax Act.
TDS Deduction Certificate under Sec 197
In order to get a lower TDS deduction, an NRI, can make an application to the TDS Assessing Officer in Form 13. Based on such an application, the AO can pass an order specifying the TDS to be deducted . The details whcih are required to be submitted to obtain a Nil or Lower Tax Deduction Certificate are as under : –
- Copy of Passport of the NRI ;
- Copy of Agreement to sell the property ;
- Copy of Purchase Agreement under which the NRI purchased the property ;
- Copy of last ITR of NRI ;
- Any other document required by tax authorities
After evaluating the details, the Income Tax Department issues a certificate, specifying the rate at which TDS has to be deducted.
The seller provides such certificate to the buyer, who is required to deduct tax accordingly.
Implication of wrong/ no deduction of TDS for the seller and the buyer
If the TDS is not deducted appropriately, the TDS has to be paid by the buyer, if the seller fails to make the payment.
Buyer must obtain TAN number
The buyer has to mandatorily obtain a TAN for deduction of TDS for a property purchased from a Non-Resident Indian.
Question: Can income of NRI from the Sale of property situated in India be exempt from tax under Treaty?
Answer
Income derived by NRI from sale of property situated in India, is generally liable to tax in India, even under Tax treaty.
How can a person save Capital Gains Tax arising from sale of property
There are certain exemptions available to Non resident Indians, under which they can reduce their tax liability
A. Section 54 Exemption on sale of property
Section 54 Exemption is available, where an NRI has long term capital gains on sale of a residential house property, and such NRI purchases another property, within 2 years from the sale of property. There are additional conditions on amount exempt from tax, lock in on transfer of new property acquired etc, that should be carefully evaluated before taking a final position on availability of exemption.
B. Exemption under Section 54 EC
Section 54EC Exemption is available, where an NRI has long term capital gains on sale of a residential house property, and such NRI invests in certain Bonds issued by NHAI and REC . There are additional conditions on amount exempt from tax, lock in on transfer of Bonds acquired etc, that should be carefully evaluated before taking a final position on availability of exemption.
Interest on excess TDS on Sale of Property by NRI
Where the TDS deducted by buyer is more than the tax liability of the Seller, the seller shall receive interest from the Government of India on such excess from a specified date, at the time of receiving the refund.
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