TDS on Sale of Property by NRI in 2022

TDS is the amount of tax that is withheld from the employee by the employer or other deductor and deposited to the income tax department on the employee’s behalf. The TDS rates are determined by the various persons income levels and age groups.

When a certain payment, such as a commission, salary, rent, professional fees, or interest payment, is made, a certain amount, known as Tax Deducted at Source, or TDS is deducted. The payer withholds tax at the point of origin, whereas the payer of a payment or income is responsible for paying tax. Because the tax will be collected when a payment is made, it reduces tax avoidance.

Check out some highlights from the Union Budget 2021:

REIT and InvIT dividend payments will not be subject to TDS.

Dividend payments to REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts) would be rendered exempt from Tax Deduction at Source, Finance Minister Nirmala Sitharaman said in the Union Budget for FY22 (TDS).

This tries to boost adherence to tax regulations. Additionally, it was suggested to deduct dividend income’s advance tax due once the payout has been paid or declared.

TDS Applicability on Sale of Property by an NRI

Every time a piece of property is bought or sold; TDS must be subtracted. When the buyer pays the seller, a portion will be withheld (officially known as TDS) and the remaining money will be paid to the seller. The purchaser would subsequently be obligated to deposit the sum that has been withheld by the purchaser with the Income Tax Department.

The amount to be subtracted would depend on the seller’s residency status. If the seller is an Indian resident, the amount of TDS to be deducted is 1% of the sale price; if the seller is an NRI, the amount of TDS to be deducted depends on the amount of money the seller received.

For the purpose of calculating the amount of TDS to be deducted, only the seller’s residence status will be taken into account, not the buyers.

Below is a detailed explanation of how and how much TDS would be deducted if the seller is an NRI.

Rate of TDS on Sale of Property

The following rates must be used to calculate TDS on an NRI’s sale of real estate: – The aforementioned sum would also be subject to a surcharge and a cess.

As a result, in the event of long-term capital gains, the effective rate of TDS on the sale of property by NRI would be as follows:

In the past, a larger surcharge was assessed if the property’s worth exceeded Rs. 2 Crores and much more so if it exceeded Rs. 5 Crores. The highest fee that can be assessed, nevertheless, has been restricted at 15% as of Budget 2022.

Therefore, the rate of TDS will stay the same, at 23.92 percent, regardless of whether the property worth is Rs. 1 crore, Rs. 5 crores, or Rs. 10 crores (applicable w.e.f. 1st April 2022)

Short-term capital gains, or those where the seller has owned the property for less than two years, are treated in the same way as long-term capital gains by having this surcharge and cess applied to the relevant tax rate according to the income tax slabs.

Every time a payment is made to an NRI for the acquisition of property, this TDS must be withheld. TDS must be taken out even if an advance is being paid for the acquisition of the property.

The buyer must submit this TDS with the Income Tax Department and state that it is the TDS he withheld from the payment made to the NRI. 

Furthermore, regardless of the property’s transaction value, TDS on purchases from NRIs must be subtracted. Even if the property’s worth is less than Rs. 50 lakhs, this TDS must be subtracted.

 

Amount from which TDS Deduction is to be made?

According to Section 195, the TDS on an NRI’s sale of real estate must be deducted, and preferably it should be deducted from the capital gains. The Income Tax Officer should calculate the capital gains rather than the seller, who is not permitted to do so.

The seller must submit a Form 13 application to the Income Tax Department in order to have his capital gains calculated. The process for submitting this form is a little cumbersome, therefore the seller can use a chartered accountant’s services to submit an application to the Income Tax Department. Depending on the capital gains that result from the sale of a property, the Income Tax Department will calculate the seller’s capital gains and issue a certificate for a Nil/Lower TDS deduction.

This certificate must be provided by the seller to the buyer, who will subtract TDS at the rates specified in the income tax certificate. The TDS should be subtracted from the Total Sale Price and not from Capital Gains in the event that the seller does not get this certificate from the Income Tax Department. The seller’s acquisition of this certificate from the Income Tax Officer is therefore crucial.

It is important to include information about the TDS deducted in the property sale agreement. Additionally, it should be emphasized that the Property Registrar is not accountable for making sure TDS Deductions are made. Even if the TDS is not deducted or is deducted incorrectly, the Registrar will nevertheless register the Sale Agreement. The Income Tax Department won’t take action against the seller if the TDS is incorrectly deducted or not deducted; instead, it would go after the property buyer to deposit the TDS. The Income Tax Department will collect the TDS from the buyer if they failed to deduct it or did so insufficiently.

TAN, TDS Return and Payment of TDS

When purchasing a home from an NRI, there are several compliances to be taken care of. First and foremost, the buyer needs a TAN number to deduct TDS. When buying property from an Indian resident, a TAN number is not necessary, but it is necessary when buying it from an Indian non-resident.

The term “TAN No.”, which differs from “PAN No.”, stands for Tax Deduction and Collection Account No. The vendor is not needed to have this TAN No.; only the buyer must. Before TDS is deducted, the buyer should seek for a TAN No. if he does not already have one. It is crucial to remember that in the event that there are two purchasers, they will each need to apply for a TAN No. (Recommended Read: How to apply for a TAN number and what it is.)

Within 7 days of the end of the month in which the TDS was deducted, the buyer must deposit the TDS that was thus withheld with the Income Tax Department. For instance, if TDS is withheld in the month of June, the TDS must be submitted with the Income Tax Department by the 7th of July, at the latest. This TDS can be submitted online as well as at numerous bank locations, and it must be deposited with Challan No./ITNS 281.

Through this URL: https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp, TDS may be deposited online. The buyer must provide a TDS Return following the TDS deposit. For each quarter in which TDS has been deducted, this TDS Return must be included on Form 27Q and in a separate submission. Within 31 days of the end of the quarter in which the TDS was deducted, this TDS Return must be lodged. (Recommended Reading: TDS Return filing procedures.)

The buyer must additionally provide Form 16A to the property seller after depositing TDS and completing a TDS Return.

How can I tell if a seller is a resident or a non-resident?

As the rate of TDS to be deducted depends on whether the seller is a Resident in India or an NRI in India for income tax reasons, knowing the seller’s residential status is crucial when conducting a property transaction with an NRI.

 

Important Factors to Consider When Determining If a Seller Is a Resident or NRI

When deciding whether the vendor is a resident or non-resident of India, the citizenship of the nation is irrelevant. For the purposes of income tax, a person who is an Indian citizen but resides abroad is nonetheless regarded as a non-resident. The Income Tax Act merely mentions the number of days spent in India and makes no mention of citizenship.

The Seller may still be regarded as a Non-Resident in India even though he holds a PAN card and an Aadhaar card from India. The number of days spent in India is the only factor used to determine residential status; neither Aadhaar nor PAN cards are used.

The seller’s residential status is unaffected by the sort of bank account he or she has. A person might still be categorized as a non-resident just because they haven’t switched their resident savings account to an NRI bank account.

 

What if the Seller declares that India is his country of residence?

The major advantage of ceasing to be a resident is that an NRI’s income produced outside of India is not subject to Indian taxation. However, a resident’s foreign income received while living outside of India is taxable in that country.

This is the major reason why persons who live outside of India work to keep their NRI status because if they become residents of India, they would also be required to pay tax on their international income.

 

Things that the Seller is responsible for

1. The seller should keep the following things in mind while deducting TDS on a property sale made by an NRI.
2. To reduce the amount of TDS that must be withheld, try to get the Certificate from the Income Tax Department for the calculation of Capital Gains.
3. The Form 13 must be presented with a number of supporting papers, such as the Purchase Price, Date of Purchase, and any costs for renovations or construction, among others. After reviewing these records, the income tax officer will issue a certificate for a reduced TDS deduction if he is satisfied.
4. If the seller is unable to get the certificate, the TDS will be subtracted from the sale price, which will result in an excessive TDS deduction.
5. In addition to the Property Registration Documents, the Seller should obtain from the Buyer Form 16A.
6. If the seller plans to reinvest the capital gains in India, he can lower his capital gains, which would result in a lower TDS and tax liability.
7. If the seller decides against getting this certificate, he can also request a refund of the extra TDS that was taken out at the conclusion of the tax year. (Recommended Should NRIs choose a refund or a certificate for a lower TDS deduction? (Read more here.)
8. If there are two sellers (i.e., co-owners), each one must submit a separate Form 13 in order to lower the TDS Rates.
9. Both NRIs and OCI Card holders are covered by the lower TDS Certificate rules, and OCI Card holders can also take advantage of the benefit in the same way.

 

Things that the Buyer is responsible for

When buying a property from an NRI, the buyer is responsible for a variety of duties. The purchaser must:

1. TDS should be withheld at the time of each payment, not at the time of property registration.
2. The TDS that has been thus deducted must be submitted with the Income Tax Department in accordance with the TDS deposit schedule.
3. According to the deadlines for filing TDS Returns, TDS Return must also be submitted to the Income Tax Department.
4. Following the submission of the TDS Return, the Buyer must additionally provide the Seller with Form 16A. It is documented on Form 16A, a TDS Certificate, that the buyer has deposited the TDS with the seller.
5. If TDS is not paid on time, interest of 1% to 1.5% per month will be charged.
6. A fine of Rs. 200 will be applied if the TDS return is filed late. A penalty of up to Rs. 1 lakh may also be assessed by the income tax officer.
7. TDS must be taken out in the event of a home loan when the seller is paid, not when the bank is paid the EMI. (Recommended Reading: TDS on Property Bought with a Mortgage.
8. On advance payments as well, TDS will be taken out in accordance with the aforementioned timetable. 
9. All payments made prior to the issue of the Lower TDS Certificate are subject to TDS in accordance with the aforementioned schedule.

 

How to Reduce Double Tax on Property Sales by NRIs in Two Countries

No matter where the property is located, many countries impose taxes on residents who sell real estate. For instance, if an NRI living in the US sells property in India, both the US and India will impose taxes on the sale. Due to the NRI’s residence in the US and the property’s location in India, both the US and India will impose taxes, resulting in double taxation.

However, India has signed double taxation avoidance agreements with a number of nations in order to prevent the imposition of multiple taxes. According to these agreements, if someone has paid Tax on Sale of Property in India, they are eligible to receive a tax credit for those payments, which will lower their tax due in the other nation.

In this scenario, the nation where the tax credit is being claimed requires that proper Disclosures be made. For instance, if you are an NRI resident in the US and you sell your property in India, you must report any profits or losses on the sale of your property in Section D of your US Tax Return. Additionally, since India and the US have a double taxation avoidance agreement, you can deduct your Indian taxes while paying taxes to the US government.

 

NRI money repatriation from outside of India

The NRI must additionally file Forms 15CA & 15CB to the Bank in order to repatriate the funds earned from the sale of Indian property outside of India. The Income Tax Website must be used to produce these forms, which must then be delivered to the Bank. Form 15CB can only be created by a Chartered Accountant; Form 15CA can be generated by the NRI himself or by his Chartered Accountant. The Form 15CB must also be signed and stamped by the Chartered Accountant. These documents demand a number of disclosures, including the source of the money to be repatriated and a certification that all taxes on those funds have been paid in India. NRIs are permitted to repatriate up to $1 million (USD) every calendar year outside of India.

 

Reduce your TDS Liability by submitting a Form 13 application

The NRI must submit a Form 13 application to the Income Tax Department for the issuing of a Certificate for Nil/Lower Deduction of TDS in order to lower the TDS on the sale of property. The vast majority of NRIs choose this certificate since it significantly lowers their TDS Liability.

The majority of NRIs engage a Chartered Accountant to file this application because it is a difficult undertaking.