Applicability of TDS on Purchase of Property from Non-Resident Indians (NRI).

When purchasing an immovable property (land, building, flat, etc.) from an NRI (Non-Resident Indian), the buyer is required to deduct Tax Deducted at Source (TDS) on the capital gains arising from the sale, as per Section 195 of the Income Tax Act.

Important Note: TDS is required to be deducted on the whole sales proceeds if the buyer or seller does not possess a lower TDS deduction certificate. Additionally, Section 194IA (TDS @1% on all immovable property transactions exceeding ₹50 lakh) applies only when the property is purchased from an Indian resident, not from a non-resident.

TDS Rates :

The rate of TDS depends on the nature of the capital gain arising to the non-resident. The applicable rates are as follows:

Long-Term Capital Gain (LTCG):

If the property is held for more than 2 years, the gain is treated as long-term and taxed at the following rates:

• For properties sold on or after 23rd July 2024:

Capital Gain / Sales Proceeds	Less than ₹50 lakh	₹50 lakh to ₹1 crore
Tax Rate	12.50%	12.50%	12.50%
Add: Surcharge on Tax Rate	0%	10%	15%
Total Tax Including Surcharge	12.50%	13.75%	14.38%
Add: Cess on Total Tax	4%	4%	4%
Applicable TDS Rate	13%	14.30%	14.96%

• For properties sold up to 22nd July 2024:

Capital Gain / Sales Proceeds	Less than ₹50 lakh	₹50 lakh to ₹1 crore	More than ₹1 crore
Tax Rate	20%	20%	20%
Add: Surcharge on Tax Rate	0%	10%	15%
Total Tax Including Surcharge	20%	22%	23%
Add: Cess on Total Tax	4%	4%	4%
Applicable TDS Rate	20.80%	22.88%	23.92%

For long-term capital gains, NRIs cannot opt for the tax rate with indexation (20%) if the property was acquired before 23rd July 2024. This option is only available to resident individuals and HUFs under specific conditions.

Short-Term Capital Gain (STCG) :

If the property is held for 2 years or less, the gain is treated as short-term and is taxed according to the applicable income tax slab for the NRI seller, with the addition of surcharge and cess.

• TDS Rate: 30% (plus surcharge and cess) on the entire sale proceeds if the buyer or seller does not have a lower TDS certificate.

( It is advisable to deduct TDS on the above mentioned applicable rates considering the sales proceeds if the buyer/seller does not have the certificate from the Income Tax Assessing Officer. The computation of capital gain cannot be done by the seller/buyer and shall be done only by the Income Tax Officer. )

Compliance Requirements for the Buyer:

The buyer has several compliance obligations when purchasing property from an NRI:

1. TAN (Tax Deduction and Collection Account Number): The buyer must obtain a TAN number for TDS compliance.

2. Deposit TDS: TDS must be deposited with the government within 7 days from the end of the month in which the deduction is made. For example, if TDS is deducted on 28th June, the due date for deposit would be 7th July.

3. TDS Return (Form 27Q): A quarterly TDS return must be filed within 31 days from the end of the quarter in which TDS was deducted.

4. TDS Certificate (Form 16A): After filing the TDS return, the buyer must issue a TDS certificate to the NRI seller within 15 days of the due date for filing the return.

By adhering to the outlined TDS procedures and rates, both the buyer and the NRI seller can ensure smooth and compliant completion of the property transaction.

Disclaimer:

The information provided here is for general informational purposes only and should not be construed as tax / legal advice.

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