What is the TDS on the Sale of Property by NRI in India?
A Tax Deducted at Source (TDS) on the sale of property by an NRI in India is deducted at higher rates compared to resident Indians. The TDS rate is calculated based on the capital gain type, which is 20% on long-term capital gains (property held for over 2 years) and 30% on short-term capital gains (property held for 2 years or less). The buyer must deduct TDS before payment to the NRI and deposit it with the government. NRIs can apply for a lower TDS certificate if actual tax liability is lower.
How Much TDS is Charged on the Sale of Property by NRI in India?
The TDS rates vary based on whether the gains are classified as short-term or long-term:
- Short-Term Capital Gains (STCG): If the property is sold within two years of purchase, TDS is deducted at 30% plus applicable cesses.
- Long-Term Capital Gains (LTCG): For properties held for more than two years, TDS is charged at 20% plus cesses.
| Particulars |
LTCG |
STCG |
| Total Income < ₹50 lakh |
Tax: 20% |
Tax: As per slab rates |
| ₹50 lakh - ₹1 crore |
Tax: 20% + 10% surcharge |
Tax: As per slab + 10% surcharge |
| > ₹1 crore |
Tax: 20% + 15% surcharge |
Tax: As per slab + 15% surcharge |
| Health & Education Cess |
4% of total tax |
4% of total tax |
| Effective TDS Rate |
- 20.80% (up to ₹50L), - 22.88% (₹50L-1Cr), - 23.92% (>₹1Cr) |
To be calculated based on slab rates |
Example of TDS on Sale of Property by NRI:
For a sale amount of ₹1 crore by an NRI, TDS will be:
| Particulars |
Rate |
Amount (₹) |
| Sale price |
- |
1,00,00,000 |
| TDS (Tax Deducted at Source) |
20% |
20,00,000 |
| Surcharge (10%) |
10% of TDS |
2,00,000 |
| Health and Education Cess |
4% |
88,000 |
| Total TDS |
- |
22,88,000 |
How to Deduct TDS Amount on Sale of Property?
The buyer must deduct TDS before transferring the sale proceeds to the NRI seller. Following are the steps to deduct TDS on sale of property by NRI:
- Form 27Q: The buyer should use Form 27Q for TDS payment if the property is purchased from an NRI.
- Obtain a Tax Deduction Account Number (TAN): The buyer must apply for a TAN for TDS deduction.
- Calculate TDS: Based on the applicable rate (30% for STCG or 20% for LTCG).
- Deposit TDS: Use an e-challan to deposit with the Income Tax Department by the 7th of the following month.
- File TDS Return: The buyer must file a quarterly return and provide Form 16A to the seller.
What Happens if No TDS is Deducted on Sale of Property in India
If no TDS is deducted, the following scenarios may occur:
- Penalty for the buyer: Buyers face penalties and interest for non-compliance.
- Liability remains with the buyer: The Income Tax Department can recover unpaid TDS from the buyer.
- Repatriation Issues: NRI seller may face delays or issues repatriating funds.
Tax on Gains from the Sale of a Property in India by an NRI
NRIs must report capital gains from property sales when filing their income tax returns in India. The nature of these gains determines their tax liability:
- STCG: Taxed according to slab rates based on total income.
- LTCG: Taxed at 12.5% with indexation benefits available.
How to Save Tax on Capital Gains by an NRI
NRIs can reduce tax liability by availing of exemptions:
-
Exemption under Section 54
- Eligibility: Available to both residents and NRIs.
- Applicability: Long-term gains from selling a residential property held for at least 24 months.
- Reinvestment: Use proceeds to purchase a new property within 1 year before or 2 years after sale, or construct a property within 3 years.
- Conditions: The new property must be in India and held for at least 3 years.
-
- Eligibility: Available to both residents and NRIs.
- Applicability: Long-term gains from any asset.
- Investment: Invest gains in bonds issued by NHAI or REC within 6 months of sale.
- Limit: Maximum of ₹50 lakhs per financial year.
- Lock-in Period: Hold bonds for at least 5 years.
-
- Eligibility: NRIs, individuals, and HUFs.
- Applicability: Long-term gains from selling any asset other than residential property.
- Reinvestment: Use proceeds to purchase or construct residential property within specified timeframes.
- Conditions: Cannot own more than one residential house (excluding the new one) on the sale date. The new property must be held for 3 years.
Repatriation of Gains from Sale of Property by an NRI in India
To repatriate funds from property sales, NRIs need to:
- Obtain Form 15CB: A Chartered Accountant certifies the transaction. It is required for bank approval for funds transfer abroad.
- Submit Form 15CA: Submit this form to the Income Tax Department.
- Submit Documents to Bank: Provide Form 15CA, 15CB, and supporting documents to the authorized bank.
- Repatriation: Bank processes the transfer to the NRI’s foreign or NRE account.
- Follow Limits: NRIs can repatriate up to USD 1 million per financial year after fulfilling all tax obligations.
Conclusion
When an NRI sells a property in India, TDS plays a crucial role in ensuring tax compliance. The buyer must deduct TDS at the applicable rates before making the payment. Proper documentation, correct PAN details, and timely filing of forms are essential to avoid penalties. NRIs can claim refunds if the deducted TDS exceeds their actual tax liability. Consulting a tax advisor can simplify the process and ensure adherence to legal requirements.
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