TDS on Sale of property by NRI/TDS on property purchase from NRI

Tax Deducted at Source (TDS) must be deducted whenever a property is purchased or sold. When selling the property, the buyer will deduct a certain amount (officially known as TDS) and pay the remaining amount to the seller. The buyer would then be obligated to deposit the sum deducted with the Income Tax Department. In this Blog there will be detailed information on TDS on sale of property by NRI in India/TDS on property purchase from NRI, and information on how NRI’s can lower TDS on property sale.

TDS (Tax Deducted at Source) on sale of property by NRI in India

When a property is sold or purchased, TDS (Tax Deducted at Source) is deducted. The buyer must deduct a certain amount (known as TDS) and pay the remainder to the seller. The amount to be deducted is determined on the seller’s residence status. If the seller is a resident Indian, TDS will be deducted at the rate of 1% of the property’s sale price. The amount of TDS to be deducted in the case of an NRI seller is determined by the amount of money received by the seller.

Tax rate implacable at the time of Selling Property owned by NRI in India

• If the property is held by the buyer for more than 2 years then the tax rate which is been imposed is at the rate of 30 percent.
• The buyer needs to deduct TDS at 20 percent, if the property is sold by NRI before 2 years, the 2 year period starts from the date of purchase of a property.

Points to keep in mind at the time of  property purchased from NRI

• To purchase a property from NRI, It is mandatory that buyer have TAN (Tax Deduction and Collection Account Number).
• Buyer needs to deposit TDS deducted from the property to the income tax department within 7 days from the end of the month in which Tax deducted at source (TDS) is deducted.
• The amount which is deducted as TDS need to be deposited by an entity using TIN 281/Challan number.
• If TDS is deducted using Form 27Q then the amount needs to be deposited within 31 days from the end of the quarter.
• After filing a TDS return, a TDS certificate must be generated within 15 days of the due date of the TDS return.

Related read: An informative guide on How to make Online TDS Payment

How NRI’s can lower TDS on Property Sale?

NRI’s are allow to save taxes on the sale of house property under section 54, Section 54EC, and Section 54F in India.

• NRI can Claim for long term capital gain exemption under section 54

If the property is a let-out house property or a self-occupied house property, then NRI can ask for exemption under Section 54. To qualify for this deduction, you must invest the earnings from the sale of your property either one year before or two years after it is sold. You can also utilize the gains to build a property that must be finished within three years of the sale date.

To claim the exemption under Section 54 of the Income Tax ACT, only one home property can be purchased or constructed with capital gains. It is a requirement that the property be located in India. The exemption will not apply to homes purchased or built outside of India.

If you have not been able to invest your capital gains until the end of the financial year in which you sold your property, you can deposit them in a PSU bank or other banks under the Capital Gains Account Scheme, 1988. You don’t have to pay tax on it if you claim it as an exemption from your capital gains on your tax return.

• NRI can Exempt TAX under Section 54EC by investing in Bonds

If you invest your long-term capital gains in specific bonds, you can save money on taxes. For this aim, bonds issued by the Rural Electrification Corporation (REC) or the National Highway Authority of India (NHAI) have been designated. These shall not be sold before the lapse of 5 years from the date of sale of the house property and are redeemable after 5 years from the date of sale of the house property.

This investment is not eligible for any other deduction. NRIs have a 6-month window in which to invest in these bonds, but they must do so before the return filing deadline to qualify for the exemption.

NRIs can invest a maximum of INR 50 lakhs in these bonds in a financial year. To ensure that TDS is not deducted on capital gains, the NRI must make these investments and present necessary documents to the Buyer. Excess TDS deducted at the time of return filing can also be claimed and refunded by an NRI.

• NRI can Exempt TAX under Section 54F if an investment is done in a residential house in India

Under this exemption, NRI can invest in a residential house and save tax, but the investment should be limited to only one residential house property and it is need to be done in a particular time period. As per the Income tax department, NRI needs to purchase a house prior to 1 year of date of transfer or two years after the date of transfer of a property. In any case if there is a construction of a house then 3 years time period is given by the Income Tax Department.

Another rule which is implemented is that an entity cannot sold this property before 3 years of its construction or purchase. The entire sale receipt must be invested in this case. Capital gains are totally exempt if the entire sale receipt is invested; otherwise, the exemption is allowed proportionately.

Conclusion

By proper planning of investment, NRI can exempt the taxable amount. With the help of section 54, section 54EC, and section 54F will help NRI to reinvest there gain from the property and exempt the taxable amount. A seller who is an NRI can also seek for a reduced tax deduction. This can be accomplished by solely deducting TDS on capital gains. TDS (Tax Deducted at Source) will be calculated only on capital gains, rather than the total sale value, as per Section 195 of the Income Tax Act. With the help of these section one can save TDS on sale of property by NRI/TDS on property purchase from NRI.