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NRIs should take advantage of lower TDS while selling property in India


TDS deduction when NRIs sell their property in India TDS deduction of 1% does NOT apply when Non-Residents (NRIs) sell their properties in India TDS rules.

Being an NRI at this point in time must a great spot to be in. And specially for NRIs who wish to make investments in India as well as for those who want to sell investments made some time ago.

According to property consultants, Indian metro cities are seeing a good 20 to 30% year-on-year increase in property sales from NRIs in the past 4 to 6 months. This is on the back of a constant rise in property prices in the metro cities.

According to data from Residex, the residential index of National Housing Bank, prices in Mumbai and Delhi have shot up by 17 and 20% between March 2012 and March 2013. While many NRIs are still mulling and some even selling their properties, it’s important they know how they will be taxed on such a transaction.

If a resident Indian or a Non-Resident Indian (NRI) sells a property in India after holding it for a period of more than three years, then long term capital gains tax of 22.66% will be applicable.

While the taxation is same for both the parties, there is a difference in the way Tax-Deducted at Source (TDS) is calculated.

Anil Harish, of DM Harish & Co. says, “An NRI selling property in India has the right to apply to the assessing officer for certificate of non-deduction or lower tax deduction. That is for deducting his TDS only on the capital gains.”

He can make this application because if the 20.66% is applied on the sale price, then the NRI may end up getting less than what he had invested.

In other words, the TDS including surcharge of 22.66% will be calculated only on the capital gains and not on the sale price which will not erode his profits, if any. If this gets approved by the Income Tax office, then the buyer of the NRI’s property can make payment to him in full (ie: sale price), whereas a certificate of (TDS on capital gains) will be issued separately to the NRI.

This procedure takes about 2 to 4 weeks, and will require the NRI to submit some key documents like his sale-agreement, PAN, income tax returns, bank statements and so on. Hence, hiring a chartered accountant or a property lawyer in India would work in his benefit to ensure a smoother transaction.

First, deduct the expenses incurred by NRI from the sale price, which will give you the net selling price of the property. Expenses incurred can include legal fees, transfer fees, traveling fees etc. Then, the difference between this and the indexed cost of purchase will be your capital gains.

However, as an NRI you can save this TDS as well.

One way of getting this waiver is if the NRI re-invests these capital gains made from the sale of property in another property (within two years) or in tax-free bonds (within six months). In such cases, the NRI will be exempt from tax in India, and no TDS will be deducted either. For this, they will have to apply for a tax-exemption certificate under Section 195 of income tax act.

Whereas, if the NRI decides to sell that property within three years, then he will have to pay short-term capital gains tax according to the tax-bracket he falls under along with a fixed rate of TDS respectively.

As an NRI, he can ask his CA to file form 15 CA & CB electronically which will state that the NRI has no tax-liability and can remit this money back to his country now. If he doesn’t wish to repatriate the money, he can keep it in his Indian bank’s NRO account. However, according to RBI guidelines repatriation of such funds per financial year should not exceed $1 million.

How to apply for Nil / Lower Tax Deduction Certificate or Tax Exemption Certificate on Property Sale

NRI Seller can apply for Nil Tax Deduction or Lower Tax Deduction with Income Tax Assessing Office. In case, NRI seller is planning to re-invest capital gain as i mentioned earlier then he can apply for tax exemption certificate. Based on assessment by Income Tax Department, certificate will be issued to NRI seller for property sale. In this case, buyer will not deduct TDS u/s 195 on sale consideration value. In above example, if Mr Taneja get certificate from Income Tax Department then buyer will pay full consideration i.e. 1.5 Cr to Mr. Taneja without deducting TDS. NRI seller can handover original Nil Deduction Certificate to the buyer for his reference. In short, buyer need not to file any TDS in seller’s name as TDS will not be deducted in this case. Income Tax Department will issue separate certificate to NRI seller for TDS on capital gains. For Tax Exemption Certificate, NRI seller can submit application in Income Tax Department under whose jurisdiction his / her PAN belongs to. To know the jurisdictional IT office of PAN, click on following link

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