TDS on Sale of Property by NRI in 2024 – Complete Guide

In order to understand the TDS process for non-resident Indians (NRIs), one must acknowledge that even though they may not live in the nation, their revenue sources while stationed there are nevertheless subject to its tax laws. It involves more than just remittances; it also involves any financial gains made in India. Therefore, in order to prevent any errors in their tax returns, NRIs must be skilled at handling TDS.

Let’s understand more about the applicability of TDS on sale of property by NRI.

Who is Liable to Pay TDS?

NRIs who sell residential real estate in India must pay taxes on their capital gains. The tax amount depends essentially on whether the capital gains are long-term or short-term.

When a residential property is sold after two years from purchase, it becomes liable for long-term capital gain tax. If it is sold before two years, it is considered a short-term capital gain.

Calculating TDS on Sale of Property by NRI

To determine TDS on a property deal, follow these steps:

• Determine the agreed-upon value of the property between the buyer and the seller.
• To get the quantity of TDS, compute 1% of the value. For example, the TDS deduction will be of Rs 75,000 for a property valued at Rs 75 Lakh.
• Before sending the payment, confirm the seller’s PAN information. TDS is deductible only if the seller has a PAN. Otherwise, the TDS deduction rate will be 20%.
• Get a TDS certificate after paying the TDS.
• The real estate transaction calculation procedure has been simplified and accelerated with the use of an online TDS calculator.

Lower TDS Deduction and Certificate Application

The following are the criteria to apply for a certificate of reduced tax deduction:

• The entire net income is less than the base exemption amount.
• Acceptance of funds from an Indian buyer for a property sold by an NRI.
• Other income that is liable to TDS, such as interest and dividends.

The process for applying for a Lower Deduction Certificate is given below:

To get the LDC, you must submit Form 13 to the Assessing Officer (TDS). The AO issues the Lower Tax Deduction Certificate once they have reviewed the information in Form 13 and are satisfied.

Exemptions and Relief Under Tax Treaties

Under Sections 54, 54EC, and 54F, non-resident individuals are eligible to seek exemptions on long-term capital gains. Consequently, an NRI is eligible to receive a refund of TDS deducted on capital gains and benefit from the exemptions from capital gains when submitting a return.

The following is how the taxpayer receives relief under section 90/90a/91 in order to avoid this hardship and double taxation of the same income:

• Mutual Assistance via DTAA Provisions 90 and 90A:

Harmony in Double Taxation Avoidance Agreements: Sections 90 and 90A give the Central Government permission to negotiate DTAAs with other nations, which opens the way for amicable tax cooperation.

Exemption Method: Only one of the two nations taxes a specific amount of income.

Tax Credit Method: Here, the government of the taxpayer’s place of residence gives him credit for the tax that was paid in the source country.

• Unilateral assistance:

In case the two nations cannot agree, assistance is given by the resident’s own country.

Required Documentation for TDS Compliance

Obtain all required paperwork before beginning the filing procedure, such as the TAN (Tax Deduction and Collection Account Number), PAN (Permanent Account Number) of the deductor and the deductees, the details of the TDS payment challan, and, if relevant, the contents of the prior TDS return.

Payment Process for TDS

Tax should be deposited by the 7th day of next month in which payment was made to the seller using e-challan.

• Check out the NSDL website to pay your taxes online.
• Choose “CHALLAN NO./ITNS 281” from the TDS/TCS menu. You’ll be taken to the online payment page.

The information below must be filled out on this page:

1. If you deduct TDS while paying a firm, choose “Company Deductees” under “Tax Applicable.” Otherwise, choose “Non-Company Deductees.”
2. Type in the Assessment Year and TAN that the payment is being made.
3. Choose “State” from the drop-down menu after entering the “Pin Code.”
4. Choose whether the money is being paid to TDS on a regular assessment or TDS deducted and payable by you.
5. From the drop-down menu, choose the “Mode of Payment” and “Nature of Payment.”
6. Select the “Submit” option.

• A confirmation page will appear after submission. If the TAN is legitimate, the taxpayer’s entire name as it appears in the master will be shown on the confirmation screen.
• After your data entry is verified, you will be taken to your bank’s online banking page.
• Using the user ID and password that the bank sent, the taxpayer should access the net banking website and complete the payment.
• Following a successful payment, a challan counterfoil with the CIN, payment information, and bank name used to make the electronic payment will be shown. This counterfoil serves as documentation of the payment.
• You must file your TDS return following the TDS payment. A cloud-based TDS filing tool is TaxCloud – ClearTDS.
• This implies that nothing needs to be downloaded to your computer. TDS data is accessible at any time and from any location. It only takes minutes to build your FVU file!

Post-Sale Compliance: Filing Tax Returns in India

Income tax returns play a critical role in the development of a country. It also facilitates the processing of your loan applications, enables you to carry forward any losses, and aids in the claim of TDS refunds. To claim deductions and exemptions under the Income Tax Act of 1961, you must also file an ITR.

Steps for filing returns for property transactions:

1. Check out the updated income tax website. Enter your password and username (Your PAN) to log in.
2. Select “e-File > Income Tax Returns > File Income Tax Return” from the dashboard.
3. Click ‘Continue’ after selecting Assessment Year (AY) as AY 2021–2022.
4. Click Proceed after choosing the online filing option.
5. Click ‘Continue’ after making the appropriate selection from Individual, HUF, and other status options.
6. To complete the right ITR form, select one choice from the list below. In this instance, choose ITR 2 and click on “Proceed with ITR 2.”
7. To begin submitting ITR 2, take note of the necessary document list and choose “Let’s get started.” After making your selections and clicking “Continue”, verify your pre-filled information and make any required adjustments.
8. Enter your income and deductions in the relevant columns. Once you have filled out and verified every area of the form, click “Proceed.”Choose and complete the schedules that apply to you on the next page.
9. Then, click “Confirm” after each schedule. Click ‘Preview Return’ once all the information has been entered and any tax liability has been paid. The “Preview and Submit Your Return page” will then appear.
10. Enter the location, check the declaration box, and click “Proceed to Validation” on this page.

Handling Disputes in TDS Deductions

Understanding the problem, speaking with the deductor, examining the documentation, contacting tax authorities if required, contesting judgments if not satisfied, and pursuing legal action are all part of handling disagreements with TDS deductions. Effective resolution requires prompt documentation and communication.

Impact of Property Sale on NRIs Overall Tax Liability

When an NRI sells real estate, the buyer is in charge of withholding Tax Deducted at Source (TDS). 20% is the usual NRI TDS on real estate sales. However, a greater TDS for NRI property sale (30%) will be applicable if the property is held less than 2 years before selling.

Key Takeaways

Here is the summarised view of rules for TDS on the sale of property by NRI

• TDS Applicability: Both residential and commercial properties sold by non-resident individuals are subject to TDS.
• TDS Rate: When an NRI sells real estate, the TDS rate is 20% of the gross sale price of long-term capital assets plus any applicable surcharge and cess.
• To meet the requirements for TDS deduction, buyers must get the NRI seller’s PAN (Permanent Account Number).
• Certificate for reduced or Nil TDS: If NRIs think their total tax burden is less than the TDS that has to be deducted from their gross income, they can apply to the Income Tax Authority for a certificate allowing TDS to be deducted at a reduced or nil rate.
• Tax Filing: If the TDS deducted exceeds an NRI’s whole tax due, they must submit an income tax return in India to receive a refund.
• Unless the tax authorities grant an extension, the deadline for filing tax returns is July 31 of the subsequent year.
• Forms 15CB and 15CA Compliance: NRIs must file Forms 15CA and 15CB to repatriate funds. Form 15CB is a certification from a chartered accountant attesting to the specifics of the payment, the amount of tax withheld at source, and other information, whereas Form 15CA is a statement from the remitter.

To guarantee compliance and minimise tax responsibilities, non-resident individuals (NRIs) should seek advice from tax specialists or legal experts who specialise in NRI property transactions, given the intricacy of tax rules and the potential for legal complexities.

So, are you an NRI and trying to make your way through the Indian real estate scene? Let Rustomjee help you with effortless process of buying a property in India. We are here to assist you at every stage, from handling financial transactions to comprehending legal compliance.

FAQs

• What is the meaning of TDS (Tax Deducted at Source)?

Income taxes, known as “tax deducted at source,” are deducted from various payments, such as rent, salaries, capital gains, interest, and professional fees.

• What is the importance of TDS on the sale of property by NRI?

It is extremely important for NRIs to deduct taxes on the sale of property as it helps them comply with the regulations of both their home country and the foreign country for taxation purposes.

• Which incomes for Non-Resident Indians have applicable TDS?

When selling a property in India as an NRI, the buyer will deduct 20% of the sale price as TDS on properties sold after two years of acquisition.