TDS Applicability on Sale of Immovable Property by Non-Resident Indian (NRI):
(i). On Sale of Immovable Property (IP) by a NRI SELLER, Capital Gain (CG) will arise to NRI Seller on which he will be liable to pay income tax depending upon the Period of Holding (POH) for which IP is being held by him.
(ii). If the POH is < 24 months, then CG on sale of IP will be treated as Short Term Capital Gain (STCG) & will be taxable as per the income tax slab rates applicable to the Individual + Surcharge (If any) + Cess @ 4% (always) will be levied since the assessee is an NRI & In case of NRI Health & Education Cess @ 4% is always applicable.
(iii). If the POH is > 24 months, then CG on sale of IP will be treated as Long Term Capital Gain (LTCG) & will be taxable @ 20% u/s 112 with indexation benefit + Surcharge (If any) + Cess @ 4% (always) will be levied since the assessee is an NRI & In case of NRI Health & Education Cess @ 4% is MANDATORY applicable.
(iv). TDS will be required to be deducted u/s 195 would depend on the residential status of the Seller. Since in this case the Seller is a NRI – the amount of TDS to be deducted would depend on the Sale Consideration amount received by the NRI Seller irrespective of the Transaction Value of the Immovable Property.
(v). In case Seller is a Resident Indian –TDS amount to be deducted would be 1% of Sale Consideration amount received, ONLY IF the value of actual sales consideration or Stamp Duty Value of IP, whichever is HIGHER exceeds Rs 50 Lakhs.
(vi). Buyer of IP is required to deduct TDS on payment made to NRI Seller. The buyer while paying the amount to the NRI seller will deduct TDS & pay the balance to the seller. TDS which has been deducted by the buyer would then be required to be deposited with the Income Tax Department by the buyer.
(vii). The residential status of the buyer would NOT be considered & only the residential status of the seller would be considered for computing the amount of TDS to be deducted on sale of IP.
Effective Rate of TDS on Sale of Property by NRI in Case of Long-Term Capital Gain (LTCG)
TDS on Sale of Property by NRI Seller is required to be deducted by the buyer as per the income tax rates as mentioned:
| Property Sale Price (Rs) | |||||
| Less than Rs 50 Lakhs | Rs 50 Lakhs to Rs 1 Crore | Rs 1 Crore to Rs 2 Crores | Rs 2 Crore to Rs 5 Crores | Above Rs 5 Crores | |
| LTCG Tax Rate u/s 112 | 20% | 20% | 20% | 20% | 20% |
| Add: Surcharge | Nil | 10% of above amount | 15% of above amount | 15% of above amount | 15% of above amount |
| Total Tax (including Surcharge) | 20% | 22% | 23% | 23% | 23% |
| Add: Health & Education Cess | 4% | 4% | 4% | 4% | 4% |
| Applicable TDS Rate (including Surcharge & Cess) |
20.80% | 22.88% | 23.92% | 23.92% | 23.92% |
Note – No Basic Exemption limit will be available to NRI Seller in case his Total Income consists of Only LTCG u/s 112. Also, NO deduction u/s 80C to 80U will be allowed to NRI Seller against this income.
Maximum Surcharge applicable in case of LTCG u/s 112 on sale of Immovable property is restricted to 15% of tax amount only.
– As per AMENDMENT in Finance Act, 2023 (i.e. from 1st April, 2023) if NRI Seller is claiming EXEMPTION u/s 54 & 54F then the exemption limit u/s 54 & 54F has been RESTRICTED to Rs 10 Crores.
– INDEXATION benefit is ALLOWED on LTCG income u/s 112. Cost of Improvement is also allowed if immovable property is purchased on or after 01.04.2001.
– In case any ADVANCE MONEY is FORFEITED on failure of negotiations for transfer of capital assets then:
a) If advance money was received & forfeited before 01/04/2014, then deducted from cost of acquisition while computing CG.
b) If advance money was received & forfeited after 01/04/2014, then it will be taxable as “Income from Other Sources”.
– In case of Long-Term Capital LOSS (LTCL) u/s 112, it can be SET-OFF ONLY against LTCG in the SAME financial year.
In case, if any LTCL need to be carry forward then ITR need to be filed on or before the due date (i.e. 31st July of assessment year) specified u/s 139(1).
LTCL can be carry forward for 8 assessment year (AY) & to be set off ONLY against LTCG & NOT against any other income.
– In case of Short-Term Capital Gain (i.e. if the Property has been held for < 24 months by the seller), this Surcharge & Cess would be added to the applicable Income Tax Slab Rate in the same manner as explained above for LTCG u/s 112.
– TDS is required to be deducted whenever any PAYMENT is made to the NRI Seller for purchase of property by the Buyer. Even if any ADVANCE is being paid for purchase of property – TDS is required to be deducted.
– Moreover, this TDS on purchase of Property from NRI Seller is required to be deducted irrespective of the Transaction Value of the Property. Even if the value of property is less than Rs. 50 Lakhs, TDS is required to be deducted.
Other Points to be Considered on Sale of Immovable Property by NRI Seller:
(1). TDS on sale of immovable property by NRI Seller is required to be deducted u/s 195 on the Sale Consideration amount.
(2). Since the TDS to be deducted on sale of immovable property by NRI Seller on the Total Sale Consideration amount is a hefty amount. NRI Seller can apply for LOWER or NIL deduction of TDS Certificate.
(3). The Seller is required to give this LOWER or NIL deduction of TDS Certificate to the buyer & the buyer will deduct the TDS as per the income tax rates mentioned in the certificate.
(4). In case this LOWER or NIL deduction of TDS Certificate is NOT obtained by the NRI Seller from Income Tax Department, then the TDS will be deducted on the Total Sale Consideration amount & NOT on the Capital Gain amount. Therefore, it is important criteria for the seller to obtain this certificate from the Income Tax Officer.
(5). The details of the TDS deducted shall be mentioned in Property Sale Agreement. It is NOT the responsibility of the Property Registrar to ensure the TDS Deduction. The Registrar will register the Sale Agreement even if the TDS is not deducted or wrongly deducted.
(6). If the TDS amount is WRONGLY deducted or NOT deducted, the Income Tax Department will NOT do anything to the seller but will catch hold of the buyer of property to deposit the TDS.
If the buyer FORGOT to deduct the TDS or deducted less TDS, then the Income Tax Dept will recover the TDS from the buyer.
(7). The buyer should have a TAN No. for deduction of TDS. TAN No. is NOT required in case property is purchased from a Resident Indian Seller but is mandatory in case the property is purchased from a NRI Seller.
(8). Only the buyer is required to have this TAN No. & NOT the seller. In case buyer does not have the TAN No., he should first apply for the same before deduction of TDS. In case there are 2 buyers, then both of them would be required to apply for a TAN No.
(9). The TDS so deducted by the buyer shall be deposited with the Income Tax Dept within 7 days from the end of the month in which the TDS has been deducted.
For example: If TDS is deducted in the month of July, then the TDS should be deposited with the Income Tax Dept on or before 7th August.
(10). After the deposit of TDS, the buyer is required to furnish a TDS Return in Form 27Q & is required to be furnished separately for each quarter in which the TDS has been deducted. This TDS Return is required to be filed within 30 days from the end of quarter in which the TDS has been deducted.
(11). After the deposit of TDS & filing of TDS Return, the buyer is also required to furnish Form – 16A to the seller of property regarding details of TDS deducted, amount of sale consideration shown in the return.
(12). In case of late payment of TDS by the buyer – interest would be levied @ 1%/1.5% per month or part thereof on late deduction & late deposit of TDS after the specific date mentioned.
In case of late filing of TDS Return by the buyer – Penalty of Rs 200 per day would be levied. The Income Tax Officer may also levy a penalty up to Rs 1 Lakh.
(13). TDS as per the above would be applicable on all payments made BEFORE the issuance of the Lower TDS Certificate deduction.
(14). It is on the basis of the no. of days which a person spends in India that it is determined whether the Seller is Resident in India or is a Non-Resident Indian. Citizenship of the Country does NOT matter while determining whether the seller is Resident or NR in India. Even if the person is a citizen of India but staying in a foreign country, he would still be considered as a Non-Resident for Income Tax purposes. The Income Tax Act nowhere talks about Citizenship – it only talks about no. of days spent in India.
Taxation in case of NRI purchasing immovable property from a Resident Indian:
An NRI (Buyer) PURCHASING an immovable property in India must deduct TDS which is calculated based on the residential status of the person selling the property. NRIs CANNOT buy agricultural land, a farmhouse or plantation property in India.
If an NRI (Buyer) purchases immovable property in India from a resident seller, he (NRI Buyer) must deduct TDS @ 1% of actual sales consideration or Stamp Duty Value, whichever is higher, if it exceeds Rs 50 lakh under section 194IA. The residential status of the buyer would NOT be considered & only residential status of seller would be considered for computing amount of TDS to be deducted.
The NRI (Buyer) make sure that the sale consideration is NOT less than the SDV of the property, otherwise, the DIFFERENCE if it exceeds Rs 50,000 will be taxable in the hands of NRI buyer under the head income from other sources.
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