Property Sale By NRIs, OCIs, Foreign Citizens – TDS U/s 195 – Lower Tax, TDS (Nil) Exemption Certificate U/s 197 (Filing Form 13 Online) – Tax Consultant in Delhi NCR, Bangalore, Mumbai, Chennai, Kolkata, Hyderabad, Pune, Gujarat, Chandigarh, Dehradun, Gurgaon, Noida, Kochi, Other Major Cities India
TDS On Property Sale Transactions By Non Residents (NRIs, OCIs)
- As per Indian Tax Laws, TDS provisions apply on various financial transactions in India.
- TDS is also applicable on Property Sale Transactions in India.
- In relation to property sale matter, If the seller is Resident Indian, 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 of the Income Tax Act.
- 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 property is long term capital asset. The rate is is 30% if property is short term capital asset. Applicable surcharge and 4% cess is extra.
TDS Rate and Genuine Hardship On Non-Resident Property Seller
- Generally, in all property sale transactions, it happens that the actual tax liability in the hands of tax payer (non-resident seller) is lesser than the proposed TDS on that transaction.
- The pain of Non-resident property seller can be understood by an example. E.g. An NRI agrees to sell a property @ Rs 1.50 Crore, and property purchase cost (after indexation) in the hands of NRI is Rs 1.45 Crore. Hence, a capital gain arises for Rs 5 Lakh only. Now, as per Non-Resident TDS provisions (Sec 195), considering property is long term asset (i.e. holding period exceed 2 years) the applicable TDS is 23.92% (20% + SC 15% + cess 4%) of sale amount i.e. Rs 35.88 Lakh. Though actual tax liability is Rs 1.04 Lakh only i.e. 80% of Rs 5 Lakh (20% + 4% cess; SC not applicable on below 50 Lakh Rs gain).
- Hence, in the above situation, as per applicable NRI TDS provisions 35.88 Lakh TDS will be deducted against actual tax liability of Rs 1.04 Lakh. Though, NRI can claim the excess TDS refund (Rs 34.84 Lakh) through filing of ITR. However, it is a time taking process. If TDS deducted on full amount, Non-resident money will be blocked with Income Tax Department for a long time, which causes loss of bank interest also.
- Hence, this is a Genuine Hardship on the Non-residents (NRIs, OCIs) in relation to their property sale matter transactions in India.
- To overcome this situation, Income Tax Act (sec 197) provides for Lower TDS Certificate option (or also called as TDS Exemption Certificate).
NRI, OCI Lower TDS Certificate or TDS Exemption Certificate – Section 197 (Form 13)
- To seek relief in the Withholding Tax Rates, NRI/Foreign Citizen can apply for Lower TDS Certificate (TDS Exemption Certificate) with the Jurisdictional Income Tax Authority.
- This application is submitted in Form 13 of Income Tax Forms.
- NRI Lower TDS Certificate is an online application process (wef Oct 25, 2018)
- NRI applicant need to prepare and arrange various supporting documents for this Lower TDS Certificate. All the documents are submitted with Form 13 Application online.
- On submission of documents, the application moves to the Jurisdictional TDS Certificate Officer. The officer review the application and raises observations & further requirements if any.
- On satisfying all the concerns, the officer processes the certificate and allow 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 Certificate.
- Hence, through this process NRI/Foreign citizen gets TDS relief before the sale transaction, and avoid blocking of their money with Income Tax Department.
NRI Lower TDS Certificate (exemption certificate) For Property Sale Transaction in India – Documents Requirement (Sec 197 – Form 13)
In this regard, though as per the transaction and other facts of Non-resident & property, hereunder is a standard list of documents & info, which are generally required for preparation of Lower TDS Certificate Application:
- Income Tax Login Details of NRI/Foreign Citizen. If not created then need to be created (incometaxindiaefiling.gov.in)
- Registration on the Lower TDS Application Portal i.e. TRACES (For Filing Form 13 online)
- Agreement To Sell With Buyer (For Sale of Property)
- TDS Account Number (TAN) & TAN Letter of Property Buyer. Buyer can apply it and get in 2-3 days by filing Form 49B with Income Tax Department.
- Copy of Passport of NRI/Foreign Citizen Seller (along with latest few years 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)
- Buyer PAN and Aadhar Copy
- Indian Bank Account statements (reflecting advance amount, if any taken on signing of agreement with buyer)
- Income Tax Return Copy (if ITR is filed) for latest 2-3 years
- Tax Record – 26AS latest 2-3 years
- Copy of POA (if someone is executing transaction as a POA in India on behalf of seller) and POA PAN & Aadhar copy
NRI Lower TDS Certificate – Timeline (Sec 197 – Form 13)
In best scenario, the time duration for this certificate remains as under:
- For preparation of application and documents – 2-3 Days
- For Moving Application to the TDS Jurisdictional Officer (Internal computerized process in Income Tax Department) – 4 days
- For Raising Observation & Other Requirement by TDS Officer – 2-4 Days
- For Complying the TDS Officer Queries – 2 Days
- For Processing of TDS Certificate – 2-3 Days
- For Approval of Senior Jurisdictional Authority (Generally Additional CIT) – 2 Days
- Issuing of Certificate – 1-2 Day
Above is a general timeline with regard to various steps involved in this TDS Certificate process. However, the time duration may vary as per the facts and circumstances of matter.
NRI Lower TDS Certificate – What Are The Steps NRIs OCIs Should Take After Obtaining Lower TDS Certificate?
Once the TDS Certificate is issued by the Income Tax Department, the Non-resident (NRI, Foreign Citizen) can proceed for property sale execution and close the sale transactions. Seller must take following documents in his possession after the sale transaction is completed:
- Proceeds of sale must be received in an NRO account in India.
- Copy of sale deed (executed in favour of buyer) must be obtained for tax compliances (ITR filing) and future tax/other query.
- Copy of property other documents before giving originals to buyer.
- TDS certificate (Form 16) in relation to TDS withhold by the buyer on property sale transaction (buyer can generate this after filing of TDS return with Inc Tax Deptt).
- Seller, if wish to remit the money from NRO account to NRE/Foreign account, a process can be initiated with the bank for remittance of money. In this regard, CA services also required for Form 15CB (CA Certificate) and 15CA filing with Income Tax Department, where we can help. For more on this, pls read https://www.nritaxservice.in/india-income-tax/remittance-of-money-by-nris-ocis-pios/
- Post financial year ends, the Non-resident seller (NRI, Foreign citizen, OCI) can file Income Tax Return with the Income Tax Department to report Property Sale and capital gain & tax working. In this ITR, NRI/OCI can also claim the income tax refund for excess TDS deducted by the buyer.
NRI Lower TDS Certificate – What Are The Steps Buyer Of Property Need To Care Wrt Lower TDS Certificate?
On receipt of Lower TDS Certificate from Non Resident Seller, Buyer should take care of following:
- Computing TDS amount carefully according to rate and sale amount mentioned in Lower TDS Certificate.
- Read the Lower TDS Certificate completely and apply surcharge and cess also according to the amount of purchase.
- Choosing correct TDS payment challan i.e. Form 281.
- Deposit the TDS under section 195 only. Hence, accordingly code to be chosen while filling the form.
- Details of TDS payment should be provided in Sale Deed.
- Preparation and filing of correct TDS return and accurately.
- Filing of TDS return timely to avoid late filing penalty charges.
- Obtaining TDS Certificate and providing the same to NRI Seller.
- Common mistakes by Buyers are: Computing wrong amount of TDS, Incorrect Form for TDS payment, Non-filing of TDS return, Inaccurate filing of TDS Return.
NRI Property Sale Lower TDS Certificate Frequently Asked Questions (FAQs)
Q: Who is the Jurisdictional Officer for lower TDS Certificate Application Processing?
Ans: The lower TDS Certificate application (Form 13) can be processed by any officer (of Income Tax Officer level) in International Tax Jurisdiction. It is not necessary that officer will be of same jurisdiction where the PAN is lying or where the property is lying. This officer can be anywhere. The headquarter of International Tax is in Delhi.
Q: Can Lower TDS Certificate for NRI Property Sale Transaction be generated at Nil rate? Is there any basic minimum rate for Lower TDS Certificate under the provisions of Income Tax Laws?
Ans: Technically, a Lower TDS Certificate cannot be generated at Nil rate. It can be any decimal percentage but it cannot be generated nil. Further, as per the Income tax provisions there is a provision of Nil certificate, however, practically, in local Commissionerates a minimum rate has been decided (e.g. 3%) even if there is a capital loss in the property sale transaction.
Q: For how long period a Lower TDS Certificate is valid for? What If agreement with buyer gets cancelled after obtaining Lower TDS Certificate?
Ans: Once a lower TDS Certificate is issued by the Jurisdictional Officer, it is valid from the date of issuance to March 31 of that financial year. If agreement with buyer is cancelled after obtaining the lower TDS Certificate (or during the process of application is filed) then a fresh application needs to be filed with new buyer. Lower TDS Certificate is buyer TAN specific, hence, with change of buyer application also need to be filed for new buyer.
Q: Which Jurisdiction the Lower TDS Certificate application is sent for processing? Does it has any connection with location of property or present jurisdiction of NRI seller?
Ans: Lower TDS certificate application is a separate process which is done by a separate officer. It is not necessary that the Lower TDS Certificate officer will be in same city where the property is. Also, it has no relevance that what is the present tax jurisdiction of the applicant NRI Seller. The Lower TDS Certificate application is assigned to a separate jurisdiction. A Chennai/Hyderabad/Mumbai property transaction lower TDS Certificate can be processed by Delhi Tax Jurisdiction.
Q: Whether Lower TDS Certificate is processed for amount received in advance by the NRI seller?
Ans: Lower TDS certificate application is generally processed by the Jurisdictional Officer on the amount to be received. However, if there is any minor amount is received by the Seller at the time of sale agreement, then generally the officer allow and process TDS Certificate on total sale transaction including advance received. However, as a precaution, NRIs Seller should avoid taking big amount at the time of sale agreement signing.
Q: How much time it takes for processing of NRI Property Sale Lower TDS Certificate?
Ans: The process involves 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 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 15 days to 45 days time.
Q: Once the Lower TDS Certificate is obtained by the Seller, what else seller needs to take care at the time of sale registration of property?
Ans: Seller should ensure that buyer has deducted and paid the TDS as per lower TDS certificate. Buyer shares the TDS challan (Form 281) at the time of sale registration.
Q: What should seller obtain from buyer at the time or after the sale registration of property?
Ans: At the time of sale registration, buyer only share the TDS Challan. However, TDS credit of same into seller PAN comes once buyer files the TDS return (Form 27Q) after the quarter ended from the sale registration. Hence, Seller need to follow up with buyer for TDS Certificate (Form 16A) after the quarter ending from the sale of property date. Many buyer defaults here as they do not know/understand the post sale procedures of TDS, hence, seller also need to follow up with buyer post sale to get the TDS return filing and obtain TDS certificate.
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