TDS Implications for NRIs Selling Immovable Properties: A Comprehensive Guide

When an NRI (Non-Resident Indian) sells property in India, tax implications come into play, particularly regarding TDS (Tax Deducted at Source). Understanding these tax regulations is crucial to ensure compliance and avoid penalties. Here’s a simplified guide to help both buyers and sellers navigate TDS obligations efficiently.

1. Understanding TDS on Property Sales

Under Section 195 of the Income Tax Act, the buyer is responsible for deducting TDS on the full sale consideration unless the NRI seller provides a lower deduction certificate.

2. Revised TDS Rates for NRIs

Effective from July 23, 2024, the TDS rate for NRIs selling immovable property has been updated. The new rates are as follows:

• 12.5% TDS on the sale amount.

• Additional surcharge:

  • 10% for sales between Rs 50 lakh to Rs 1 crore.

  • 15% for sales above Rs 1 crore.

• 4% health and education cess.

• This results in an effective TDS rate of 14.3% or 14.95%, depending on the sale value.

3. How to Apply for a Lower TDS Deduction

If an NRI seller believes their actual tax liability is lower than the standard TDS rate, they can apply for a lower deduction certificate (Form 13) under Section 197 of the Income Tax Act. This certificate allows the buyer to deduct TDS at a reduced rate.

4. Importance of a PAN for NRIs

NRIs selling property in India must obtain a Permanent Account Number (PAN) to facilitate TDS deductions and comply with tax regulations.

5. TAN Requirement for Buyers

• The buyer of the property must obtain a Tax Deduction and Collection Account Number (TAN) to deduct and deposit TDS.

• If multiple buyers are involved, each buyer must obtain a separate TAN if investing from individual funds or through a joint loan.

• Once the TAN is obtained, the buyer must deduct TDS each time a payment is made to the NRI seller and deposit it with the Income Tax Department via e-challan before the 7th of the following month.

6. Penalties for Non-Compliance

Failure to deduct or deposit TDS on time attracts penalties under Sections 201(1A) and 271C of the Income Tax Act. Non-compliance can lead to interest charges and additional penalties.

Conclusion

Both NRIs and buyers must be aware of their TDS obligations to ensure smooth property transactions. Understanding tax rates, lower deduction provisions, and necessary documentation like PAN and TAN can help prevent legal hassles and unnecessary financial burdens.

For personalized guidance, consult a tax professional to ensure compliance with the latest tax regulations.