The process of selling a property in India can be complicated for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs), especially when complying with Indian income tax laws. NRIs selling property in India are required to file TDS returns, and failure to comply with these regulations can result in hefty penalties. If you are an NRI looking to sell a property in India, it is essential to understand about NRI tax on property sale in India. In this blog, we will provide a step-by-step guide on how to file TDS returns on sale of property for NRIs.
How to file TDS returns on Sale of Property in India as an NRI? Step-by-Step Process
As an NRI, you are required to file TDS returns on sale of property with the Indian tax authorities within a certain period. Here is the process for filing TDS returns for NRIs:
Also read: 5 Things NRIs Should Note When Selling Property in India
Step 1: Calculate Tax Liability
To ensure that the sale price is not below the fair market value, the seller must acquire the stamp duty valuation. After obtaining it, the seller should calculate the capital gains and corresponding tax liability using either the stamp duty value or sale consideration, whichever is higher. If there is a loss or a substantial gap between the final tax liability and the TDS on NRI property sale, the seller can apply for a lower withholding certificate with justifiable reasons.
Step 2: TAN of the Buyer
During the application process, the seller must provide the buyer’s valid TAN. If the buyer does not have a TAN, they can obtain one within 7 to 10 days by submitting Form 49B. Form 49B is available at any TIN facilitation center, which is set up for receiving e-TDS returns.
Step 3: Collect Documents for Lower Withholding Certificate
To apply for a lower withholding certificate, the seller must complete Form 13 online and provide three sets of documents:
- These include documents related to the proposed sale, such as MOU, stamp duty valuation, purchase agreement showing the cost of acquisition, and bank statements or receipts of payment made during the property purchase.
- Additionally, the seller must provide documents indicating the estimated computation of income for the current financial year, which should include all received or receivable income and corresponding tax liability.
- Finally, documents proving that there is no tax liability due for the past four years must be submitted, including past income tax returns, form 26AS, and any past assessment orders.
Also read: Five Must-Know Things for NRIs Buying Property In India
Step 4: Register on the I-T portal and file application
After applying, the assessing officer will review it and request further information if necessary before granting or denying the certificate. The processing of the application typically takes about three to four weeks. The department evaluates each case on its merits before issuing withholding tax certificates. A lower withholding certificate is valid until the end of the financial year, and the seller must ensure that the payment is made within the timeframe specified in the certificate.
In addition, if the TDS is deducted at a rate higher than the seller’s final tax liability for any reason, the seller can file a tax return and request a refund of the excess TDS deducted. The purpose of the lower withholding certificate is to prevent the seller’s cash flow from being negatively impacted by higher TDS.
What is the TDS on Sale of Property by NRI in India?
The TDS rate applicable to NRIs on the sale of properties owned by them is 20% for long-term capital gain. However, if the property is sold before 2 years, the TDS rate will be based on the NRI seller’s income tax slab rate.
- When selling a property held for more than two years, the buyer is required to deduct 20% as TDS (Tax Deducted at Source) for long-term capital gains.
- On the other hand, if the property has been held for less than two years, the TDS rate for short-term capital gains tax will be based on the NRI seller’s income tax slab.
Note: Surcharges and cess would also be charged on the capital gains.
On What Amount of Property is TDS Required to be Deducted?
Deduction of TDS is necessary for capital gains, which the seller must calculate and communicate to the buyer. The buyer can then apply the relevant TDS rate based on the reported capital gain amount. In case the buyer is not informed of the capital gain amount, it is recommended to deduct TDS on the entire sale price to prevent any shortfall in TDS deduction and subsequent interest and penalties.
How to Save Taxes When Selling a Property in India by NRI?
Several exemptions under the Income Tax Act can help the NRIs save a significant amount of taxes when they sell a property. You can reinvest the profit generated from sale of property for the purchase of another property to benefit from these exemptions. Here are the options that you can avail to save on taxes when selling property in India:
- Exemption under Section 54: NRIs can claim exemptions on long-term capital gain on the sale of a house property under Section 54. The exemption is applicable on self-occupied and let-out house property. To claim this exemption, you can invest the gains for the purchase of property either one year before the sale or 2 years after the sale of your property. You can also use the gains in the construction of a property that must be completed within 3 years from the date of sale.
- Exemption under Section 54F: You have to purchase one house property within one year before the date of transfer or 2 years after the date of transfer to claim exemption under Section 54F. You can also construct one house property within 3 years after the date of the transfer of the capital asset. Note the new house property must be situated in India and should not be sold within 3 years of its purchase or construction.
- Capital Gains Bonds for Tax Exemption under Section 54 EC: You can save tax on your long-term capital gains by investing them in capital gains bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC). You can redeem them after 5 years and must sell them before the lapse of 5 years from the date of sale of the house property. Note: You are allowed a period of 6 months to invest in these bonds. However, to be able to claim exemption, you will have to invest before the income tax return filing date.
Also read: Long Term Capital Gain Tax on Sale of Property in India
Repatriation of Funds
If you’re an NRI and intend to repatriate the proceeds generated from selling a property to your home country, you must submit Form 15 CA and 15 CB. Form 15 CA ensures that taxes have been collected on the fund before it is repatriated abroad. You can complete Form 15 CA on your own, while Form 15 CB must be submitted by a certified authority such as a chartered accountant. NRIs are permitted to remit up to USD 1 million during a financial year outside India.
Contact SBNRI
Due to a complicated tax system and recurrent amendments, understanding tax laws can be confusing and NRIs may be subject to additional fees or miss claiming deductions and other benefits. At SBNRI, we understand this struggle. You can download SBNRI App to connect with our NRI Tax Experts to know more about new TDS/ TCS rules for NRIs. You will also get end-to-end assistance related to NRI tax filing.
SBNRI will also help you get a lower TDS Certificate. You can also click on the button below to ask any questions. Visit our blog and YouTube Channel for more details.
FAQs
Do NRIs pay capital gains tax?
- The capital gains tax regulations for an NRI are the same as those for a resident individual, except the TDS provisions. Similar to resident investors, the capital gains tax for an NRI is determined by the duration of ownership and the kind of asset that was sold.
What is the TDS on NRI property?
- TDS (Tax Deducted at Source) shall be deducted whenever any property is sold/ purchased. The buyer needs to deduct TDS and pay the balance to the seller. The amount to be deducted depends on the residential status of the seller. In the case of an NRI seller, the amount of TDS to be deducted will depend on the quantum of money received by the seller.
How can NRIs avoid paying TDS on property sale?
- If an NRI is selling property in India, the buyer is required to deduct TDS at the rate of 20% in case of long-term capital gains. However, if the property is sold before two years, TDS shall be deducted at the rate of 30% as a short-term capital gains tax.
How can I avoid capital gains tax on property sale?
- Several exemptions under the Income Tax Act can help property sellers save a significant amount. You can reinvest the profit generated from sale of property for the purchase of another property to benefit from these exemptions. Additionally, investing in particular bonds, such as capital gains bonds, can help you obtain exemptions on long-term capital gains tax under Section 54EC.
How to file TDS on sale of property from NRI?
- The buyer is required to file Form 27Q within 30 days from the end of the quarter in which the TDS was deducted, mentioning the details of
- The deductee (NRI).
- The TAN (Tax Deduction and Collection Account Number) of the deductor (buyer).
- The amount of TDS deducted.
What is the TDS rate on sale of property by NRI?
- Long-term capital gains on the sale of property held for more than 2 years: 20%
- Short-term capital gains on the sale of property held for less than 2 years: As per the income tax slab rates of the seller
Do NRIs pay capital gains tax?
- Yes, capital gains tax provisions for an NRI are similar to those for a resident individual except for the applicability of TDS provisions. Like resident investors, capital gains tax for an NRI depends on the holding period and the type of property sold.
How can NRI claim TDS refund?
- At the end of a financial year, if you want to claim an NRI TDS refund that was deducted earlier, you have to file your income tax return. Per your income tax slab rate, you can calculate your income and tax liabilities to file the tax returns before 31st July of the coming financial year.
Is TDS compulsory for NRI?
- TDS is paid by any non-residents for any amount generated from business transactions in India. The amount may or may not be an income of a profit. NRIs have to pay TDS even for income types from which resident Indians are liable, like dividends on mutual funds.
Can an NRI sell property in India without visiting India?
- Yes, NRIs can appoint someone in India through a power of attorney (POA). The POA needs to be legalized and apostilled in the NRI’s home country. Afterward, it must be registered in the Indian state where the property is located.
Can NRI transfer property in India?
- Yes, NRIs can transfer one’s immovable property in India to a resident Indian. The NRI can transfer any immovable property (other than agricultural land or farmhouse) to a citizen of India residing abroad or a PIO cardholder resident outside India.
