How NRIs can Save TDS while Selling Immovable Properties in India

Introduction

Tax Deducted at Source (TDS) is like a hurdle for you, which can amount to a substantial sum and eat into your profits. In this blog, we will provide you with a comprehensive guide on how NRIs can save TDS while selling immovable properties in India. As an NRI, selling immovable property in India can be a complex and time-consuming process, with a number of legal and financial hurdles to navigate.

What is TDS?

TDS stands for Tax Deducted at Source, which is a system of collecting income tax in India at the time of payment. In the context of property sales, the buyer is required to deduct TDS from the sale proceeds and remit it to the government. The current rate of TDS on the sale of the property is 20%, but it can be higher or lower depending on various factors.

How to Calculate TDS?

TDS is calculated on the total sale value of the property, which includes the sale price, stamp duty, and registration fees. The TDS rate is calculated based on the type of property, the sale value, and the tax status of the seller. As an NRI, you are subject to a higher TDS rate of 20% (plus surcharge and cess) on the capital gains arising from the sale of your property. However, you can reduce the amount of TDS by claiming certain exemptions and deductions, such as:

1. Capital Gains Exemption: As per the Income Tax Act, NRIs are entitled to claim a capital gain exemption under Section 54, 54EC, or 54F. Under Section 54 of the Income Tax Act, if you use the sale proceeds to purchase another property within two years or construct a new property within three years, you can claim an exemption on the capital gains. Under Section 54EC, if you invest the sale proceeds in specified bonds within six months, you can claim an exemption on the capital gains. Under Section 54F, if you use the sale proceeds to purchase a new residential property within one year or construct a new property within three years, you can claim an exemption on the capital gains.

2. Double Taxation Avoidance Agreement (DTAA): NRIs can also claim relief under the DTAA, which is an agreement between India and other countries to avoid double taxation. Under the DTAA, NRIs can claim a lower TDS rate on capital gains, which is usually 10% to 15%.

3. Foreign Remittance Certificate: NRIs can obtain a Foreign Remittance Certificate (FRC) from their bank, which certifies that the funds being remitted to India are from a foreign source. This can help you avoid TDS on the sale proceeds of the property.

4. Tax Residency Certificate (TRC): NRIs can also obtain a TRC from the tax authorities in their country of residence, which certifies that they are tax residents of that country. This can help you claim relief under the DTAA and avoid TDS on capital gains.

What Documents are Required for TDS?

To avoid TDS on the sale of your property, you need to submit the following documents to the buyer:

1. PAN Card: As per the rules, the buyer is required to deduct TDS on sale proceeds only if the seller provides their PAN (Permanent Account Number) card. So if you are an NRI and you don’t have a PAN card it is important that you get a PAN card registered in your name so that you can proceed with further procedure.

2. Form 15CA: This is a declaration form that needs to be submitted by the seller to the Income Tax Department. It is an online form that can be filled out and submitted on the Income Tax Department’s website. Form 15CA is required for any remittance exceeding INR 5 lakhs, and it is mandatory for NRIs to submit this form.

3. Form 15CB: This is a certificate issued by a chartered accountant, certifying that the provisions of the Income Tax Act and the DTAA have been duly complied with. It is required for any remittance exceeding INR 50 lakhs and it needs to be obtained by the seller before submitting Form 15CA.

How we can save TDS?

Now that you know the documents required for Tax Deducted at Source, let’s look at how you can save TDS while selling your property in India:

1. Claim Exemptions and Deductions: As discussed earlier, you can reduce the amount of TDS by claiming exemptions and deductions such as capital gains exemption and DTAA relief. Make sure to consult a tax expert to understand the eligibility criteria and the procedure for claiming these exemptions.

2. Obtain FRC and TRC: Obtaining an FRC and TRC can help you avoid Tax Deduction at Source on the sale proceeds of the property. Make sure to obtain these certificates well in advance and provide them to the buyer.

3. Plan your Remittances: As an NRI, you can also plan your remittances in such a way that you receive the sales proceeds in instalments over a period of time. This can help you avoid or reduce the amount of TDS, as the TDS rate is calculated on the total sale value of the property.

4. Negotiate with the Buyer: You can also negotiate with the buyer to deduct a lower TDS rate, especially if you are eligible for DTAA relief or have claimed exemptions under the Income Tax Act. Make sure to have all the necessary documents in place and consult a tax expert before negotiating with the buyer.

Conclusion

Selling an immovable property in India can be a daunting task for NRIs, especially when it comes to TDS. However, with the right planning and documentation, you can save TDS and maximize your profits. Make sure to consult a tax expert and have all the necessary documents in place before selling your property. By following the tips mentioned in this guide, you can ensure a smooth and hassle-free sale of your property in India.