Tax deduction at Source (TDS) while buying a property in India from an NRI

As per Income Tax Act 1961, under section 195 , NRIs who are selling a property in India are liable to pay taxes that is in tune of 20% on the transaction made. This rate is 1 % in case of a Resident.

Interestingly, the buyer has to deduct the tax at source before crediting such payment. In effect when a property buyer is buying a property from an NRI, the buyer is liable to deduct tax (TDS) from the payment/s made. This deduction is to be made irrespective of whether there is gain or not, and non-compliance to this tax rule can attract a penalty on the buyer.

 

Rate of Deducting this TDS

Sale of immovable property by a Non Resident Indian is taxable under the income tax under Chapter XII-A of the Income Tax Act, more specifically under section 115E of the Income Tax Act 1961. As discussed above, the rate of tax is 20% of the Total Consideration Value.

It should be noted that if the transaction is a loss, the NRI can obtain refund. He/ She needs to file income tax returns  in India to claim refund of excess amount deducted.

Process and few important points for TDS deduction

  • The buyer should have a Permanent Account Number (PAN)and Tax deduction Account Number (TAN) as per section 203A of the Income Tax Act 1961.
  • The buyer should have Permanent Account Number (PAN) of the NRI before deducting the tax.
  • The buyer should deposit the tax deducted with the government within seven days from the end of the month in which the transaction is made.
  • The buyer should also file TDS returns electronically – to be submitted in Form No 27Q with basic details of the NRI along with his/ her PAN and TAN details.
  • The Buyer after filing TDS should issue a TDS certificate in Form 16A to the NRI within 15 days.

Situations where TDS is not deducted

There are certain situations under section 54 in which an NRI can get waiver of TDS. For instance, under situation when the NRI is planning to re-invest the capital gains of the property in another property or in tax exempt bonds within the stipulated time . In such cases, the NRI will be exempt from tax in India and would not like to have TDS deducted. For this, they will have to apply for a tax-exemption certificate under Section 195 of income tax act.