PROPERTY SALE BY NRIs, Foreign Citizens – TDS U/S 195 – LOWER TDS OR TDS (NIL) EXEMPTION CERTIFICATE U/S 197 – Tax Consultant In Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bangalore, Gurgaon, Noida, Other 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.
- 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 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 provides for Lower TDS Certificate (or also called as TDS Exemption Certificate) under section 197 of Income Tax Act.
NRI 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 Departement.
- 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)
- Indian Bank Account statements for latest 18-24 months
- Income Tax Return Copy (if ITR is filed) for latest 2-3 years
- Tax Record – 26AS latest 2-3 years
NRI Lower TDS Certificate – Timeline (Sec 197 – Form 13)
In General, the time duration for this certificate remains as under:
- For preparation of application and documents – 2 Days
- For Moving Application to the TDS Jurisdictional Officer (Internal computerised process in Income Tax Department) – 4 days
- For Raising Observation & Other Requirement by TDS Officer – 2 Days
- For Complying the TDS Officer Queries – 2 Days
- For Processing of TDS Certificate – 2 Days
- For Approval Of Senior Jurisdictional Authority (Generally Additional CIT) – 2 Days
- Issuing of Certificate – 1 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.