My NRI friend Amit wants to sell his property in South Delhi and asked me a couple of very important questions pertaining to the impact of TDS while selling his real estate asset and this led to our latest blog.
In this blog, we would venture into the various process and impacts of TDS on selling a property by an NRI.
What is TDS?
The concept of TDS was introduced with the aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get the credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.
Is TDS applicable on the Sale of Property?
As per the Finance Bill of 2013, TDS is applicable on the sale of immoveable property wherein the sale consideration of the property exceeds or is equal to ₹ 50,00,000 (Rupees Fifty Lakhs). Sec 194 IA of the Income Tax Act, 1961 states that for all transactions with effect from June 1, 2013, Tax @ 1% or 0.75% should be deducted (depending upon the Date of Payment/Credit to the Seller) by the purchaser of the property at the time of making payment of sale consideration. The tax so deducted should be deposited to the Government Account through any of the authorised bank branches.
Is the TDS the same for a Non-Resident Indian Seller for his real estate asset?
In relation to property sale matters, If the seller is a Resident Indian, the TDS rate is 1% and governed by section 194IA. However, if the seller is Non-Resident (i.e. NRI, OCI, Foreign Residents), TDS is governed by Non-Resident TDS provisions i.e. section 195.
What are Non-Resident TDS provisions i.e. section 195?
Under the Non-Resident TDS Provisions i.e. Section 195, TDS rates apply at the maximum rates on the Sale amount of Property. This rate is 20% if the property is a long-term capital asset. The rate is 30% if the property is a short-term capital asset. Applicable surcharge and 4% cess are extra. Which changes every financial year.
Can a Non-Resident pay lower tax while selling his real estate asset?
If TDS is deducted on the full amount, Non-resident money will be blocked with Income Tax Department for a long time, which causes loss of bank interest and harassment also. So, to overcome this situation, Income Tax Act provides for a Lower TDS Certificate (also called as TDS Exemption Certificate) under section 197 of the Income Tax Act.
Generally, in all property sale transactions in South Delhi, it happens that the actual tax liability in the hands of the taxpayer (non-resident seller) is lesser than the proposed TDS on that transaction. Hence, this is a Big Challenge for the Non-residents (NRIs, OCIs) in relation to their property sale matter transactions in India.
What steps should a Non-Resident take to apply for Lower TDS Certificate (also called as TDS Exemption Certificate) under section 197 of the Income Tax Act?
Steps to Apply under Section 197 Form 13 for South Delhi NRI Lower TDS Certificate or TDS Exemption Certificate:
- This application is submitted in Form 13 of Income Tax Forms.
- From Oct 25, 2018, NRI Lower TDS Certificate is an online application process
- NRI applicants need to prepare and arrange various supporting documents for this Lower TDS Certificate. All the documents are submitted with the Form 13 Application online.
Documents Required (these might change), pls refer to your CA)
- Agreement To Sell with Buyer (For Sale of Property)
- TDS Account Number (TAN) & TAN Letter of Property Buyer. Buyers can apply it and get it in 2-3 days by filing Form 49B with Income Tax Department.
- Copy of Passport of NRI/Foreign Citizen Seller (along with the latest few year’s internal pages)
- Circle Value of property being sold (documentary evidence or website reference)
- Property Acquisition & Purchase related documents (i.e. Sale Deed, Agreement with Builder, Allotment Letter, Possession Letter, Receipts etc; whichever exist)
- Indian Bank Account statements for the latest 18-24 months
- Income Tax Return Copy (if ITR is filed) for the latest 2-3 years
- Tax Record – 26AS latest 2-3 years
- On submission of documents, the application moves to the Jurisdictional TDS Certificate Officer. The officer reviews the application and raises observations & further requirements if any.
- On satisfying all the concerns, the officer processes the certificate and allows Lower TDS to the NRI/Foreign citizen in relation to the transaction.
- On receipt of the Lower TDS Certificate (or TDS exemption certificate), the buyer deducts the TDS as per the Certificate.
- Hence, through this process, NRI/Foreign citizen gets TDS relief before the sale transaction, and avoid blocking their money with Income Tax Department.
What time does it take for the processing of the NRI Property Sale Lower TDS Certificate?
The process involves a few steps i.e. allotment of an officer to the case (happens technologically), reviewing of file and raising queries by the officer, again queries if any, processing of the file and sending to the jurisdictional senior authority for approval, processing & uploading certificate. According to the quickness at the Jurisdictional Officer level, it may take 45 days to 60 days time.
Disclaimer: SouthDelhiPrime is a Premier “luxury” real estate research and transaction advisory real estate family office The Advice given is for reference and is based purely on our understanding & experience and should not be deemed as legal. It is recommended that the Clients conduct legal due diligence.
