👍👍👍👍👍Sale of Property in India by an NRI – TDS provisions for Buyers & Sellers

Clipped from: https://taxguru.in/income-tax/sale-property-india-nri-tds-provisions-buyers-sellers.html

When a person purchases immovable property from a Non-Resident in India, He or She is liable to deduct TDS on the entire Sale Consideration (on every payment made to the seller, irrespective of the value of the Property) as provided under section 195 of the Indian Income Tax Act, 1961.

Let us first understand who is an NRI for Income Tax Purposes:-

1. If a person has resided in India for less than 182 days in the F.Y.

OR,

  •  If a person has resided in India for less than 60 days in the F.Y. AND less than  365 days in the immediately 4 F.Ys (Both conditions should be fulfilled)
  •  If an Indian citizen who leaves India in any FY for the purposes of employment or who leaves India as a member of the crew of an ‘Indian Ship” has resided in India for less than 182 days in that F.Y. AND less than 365 days in the immediately 4 F.Ys (Both conditions should be fulfilled)
  • If a Citizen of India or POI (Person of India Origin), visiting India in any FY, having a total Indian Income lesser than Rs. 15 Lakh, other than income from foreign sources has resided in India for less than 182 days in that F.Y. AND less than 365 days in the immediately 4 F.Ys (Both conditions should be fulfilled).
  • If a Citizen of India or POI (Person of India Origin), visiting India in any FY, having a total Indian Income of more than Rs. 15 Lakh, other than income from foreign sources has resided in India for less than 120 days in that F.Y. AND less than 365 days in the immediately 4 F.Ys (Both conditions should be fulfilled.
  • It is advisable for every buyer who intends to purchase any Property, to ensure the Tax Residency Status of the Seller as the TDS provisions are totally different for a Resident Indian Seller and an NRI Seller.

In the case of the Resident Indian Seller, the TDS rate is @ 1% on the Sale Consideration above Rs. 50 Lakh, whereas in the case of NRI Seller, the minimum limit of Rs. 50 Lakh is not applicable. All property transaction, irrespective of the Sale consideration, attracts TDS provisions u/s 195 of the Income Tax Act. The TDS rates prescribed by the Govt. of India for payment to an NRI for the acquisition of their property, which is held by the Seller for more than 2 years, come under the purview of Long-Term Capital Gains.  The rate of Long Term Capital Gain Tax, Surcharge, and Education cess is detailed in the following table for ready reference:-

Particulars Sale Consideration of the Property held by an NRI
Less than Rs.  50 LakhsBetween Rs. 50 Lakhs to Rs. 1 CroresAbove Rs. 1 Crores
Long-Term Capital Gains Tax20%20%20%
SurchargeNil10% of above15% of above
Total Tax (Including Surcharge)20%22%23%
Health & Ed. Cess4% of above4% of above4% of above
Effective TDS Rate20.8%22.88%23.92%

Example: If an NRI person held the property for more than 2 years and is selling for a consideration of Rs. 1,50,00,000/-, then the buyer shall deduct TDS at the rate mentioned in the above chart. The same is worked out as under:-

Sale ConsiderationRs. 1,50,00,000/-
TDS @ 20%Rs.30,00,000/-
Surcharge @ 15% on Rs. 30,00,000/-Rs. 4,50,000/-34,50,000/-
Education Cess @4% on 34,50,000/-Rs. 1,38,000/-
Total TDS to be deducted35,88,000/-/-

Hence the Seller will get only Rs. 1,14,12,000/- out of Rs. 1,50,00,000/- and the balance Rs. 35,88,000/- will be deducted by the buyer to deposit with Income Tax Department as TDS.

Here it is pertinent to mention that whether any Capital Gain Tax liability for the aforesaid transactions comes to the NRI Seller or not, the buyer is dutybound to deduct TDS on the entire sale consideration as per the above-prescribed rates or the rare prescribed in Lower/Nil Deduction Certificate issued by the Income Tax Department.

The obligation of the Buyer, if buying property from an NRI:- The buyer/s is duty bound to deduct the entire TDS amount as per the rate prescribed above on every occasion of making payment to the Seller (Or as per the rate prescribed in the Lower/NIL deduction Certificate obtained by the Seller from the Income Tax Department, which will be discussed in subsequent para).

The buyer has to apply for TAN (Tax Deduction Account No.) and get TAN in his/her name. If the purchases are made jointly and all persons are investing money from their own sources or by way of joint loans, all the persons have to obtain TAN. If the purchases are made jointly but only one person is making all investments and the names of other persons are included only for the sake of convenience, then TAN has to be applied only by the person, who is making the entire investment.

Once the TAN is obtained, the buyer is required to deduct TDS on every occasion of making payment to the NRI Seller and deposit the TDS amount with the Income Tax Department through e-challan latest by the 7th  day of the next month which the payment is made to the Seller.  After depositing the TDS, the buyer shall file TDS Return in the next quarter. Once the TDS return is filed, the buyer shall download form 16A and handover to the Seller. (It is advisable for the buyer to get the services of a Tax Advisor for proper deduction and payment of TDS).

Implication on the Buyer if the TDS is not deducted as per the prescribed Rate:- Many times the Seller does not disclose their Tax Residency Status to the buyer and completes the property transaction as a Resident Indian. This is illegal and has adverse ramifications for the Buyer. As discussed above, it is the legal responsibility of the buyer to deduct and deposit the TDS as per the prescribed rate or the rate prescribed in the Lower/Nil Deduction Certificate issued by the Income Tax Department. However, in a case, if the buyer did not deduct the TDS as per prescribed rates, the buyer shall be liable for a penalty for the equal amount of TDS, which was not deducted, u/s 271C of the Income Tax Act. The buyer shall also will be liable to pay interest u/s 201 of the Income Tax Act on the default sum.

Example:- Let us assume that the buyer purchases a property from an NRI, who held the property for more than 2 years, for a consideration of Rs. 1,50,00,000/- and deducts TDS @ 1% (As in the case of Resident Indian) i.e. Rs. 1,50,000/- and paid remaining Rs. 1,48,50,000/- to the Seller. However as discussed above, the TDS was to be deducted @ 23.92% i.e. Rs. 35,88,000/-. In this case, the buyer will have to pay the balance of Rs. 34,38,000/- (Rs.35,88,000/- less Rs. 1,50,000/-) by way of penalty to the Income Tax Department over and above the payments made to the Seller. Further interest u/s 201 will be charged on Rs. 34,38,000/- from the date of payment to the seller till the date of payment of Rs. 34,38,000/- to the Govt. account.

Advice to the buyers :- The Buyer is advised to make sure of the Tax Residency of the Seller before entering into the property transaction. If the Seller is Non-Resident, the TDS must be deducted at the prescribed rates on every payment made to the Seller. In case the Seller produces the Nil/Lower Deduction Certificate, deduct the TDS at the rate as given in the certificate.

Implication on the NRI Seller if the TDS is not deducted as per the prescribed Rate:- In most of cases the NRI person sells their property to get the funds abroad for utilisation. In the event of non-deduction of TDS as per rules, the Seller will not be in a position to repatriate the amount of Sale Consideration received to his foreign bank account/NRE account. Further, when the said transaction comes to the notice of the Income-Tax Department, the Seller can be prosecuted for misrepresentation of facts of his/her Tax Residency.

Advice to the NRI Seller:- It is advised to hire an Expert Tax Advisor if you are planning to Sell property anywhere in India, before entering into any negotiation, it will help you with proper Tax Planning. Always declare your Tax Residency Status to the prospective buyer and follow the Tax Laws of India. The proper TDS deduction shall in turn help you to repatriate the money seamlessly to your foreign bank account. In many cases, the actual Capital Gain Taxes are minimal or do not arise at all, depending upon the facts of the case. You can always make an application for a Lower/Nil Deduction of TDS with the Income Tax Department. In this scenario, the buyer will deduct the TDS only to the extent of the rate of TDS prescribed in the certificate (which shall save a good amount of liquidity and Taxes). Since obtaining a Lower/NIL deduction certificate is a complex procedure and requires professional expertise, it is advised to seek help from an expert Tax Advisor.

*****

We give consultation to NRIs who intend to Sell property anywhere in India, right from the beginning of the negotiation till the repatriation of funds in their NRE/Foreign Bank account. The Author may be contacted through email- bdconsultantsindia@gmail.com or through WhatsApp #9967745680.

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