We get many enquiries from our NRI clients who want to sell an immovable property in India but they don’t know how to go about it. They want to know the tax implications of selling an immovable property by an NRI in India, TDS applicable when an NRI sell a property, How to reduce TDS on sale of property and further capital gain tax and then finally how to repatriate the sale proceeds out of India. Similarly, resident buyer also are not aware of the procedure which needs to be followed while buying a property from an NRI.
When an NRI sell a property located in India, it is the buyer’s responsibility to deduct the withholding tax/TDS (Tax deducted at Source) from the sale consideration while making a payment to him. Currently this TDS rate is more than 20% + edu cess + surcharge. This is applicable when an NRI seller hold this property for more than 2 years and 30%+ if property is sold within 2 years of purchase. This percentage is applicable on sale consideration rather than capital gain. This makes TDS rate applicable ona non-resident seller is quite high in comparison to applicable on resident sellers. This TDS deducted shall be deposit by the buyer to the income tax department within the prescribed time limit and the same TDS challan shall be forwarded to the seller for his records. Then TDS return shall be filed by a buyer before the due date and TDS certificate shall also be forwarded to the seller. Once it’s done the NRI seller can check the same TDS details in his 26AS also.
Once the TDS is deducted, an NRI can file his tax return on the basis of his capital gain tax liability and can claim refund of extra TDS deducted. This can be done after the end of financial year in which property is sold. The NRI can reduce his capital gain tax by investing his capital gain amount in any other residential property or by investing in government notified bonds within the specified time limit and as per the applicable provisions.
- Refund that can be claimed = TDS deducted by buyer – Capital gain Tax
- Capital gain tax = Capital gain*20.8%[add surcharge, if applicable]
- Capital gain = Sale proceeds – Indexed*Purchase price and cost of Improvement- – Transfer expense
*Indexed means inflating the value of property by applying government notified cost inflation rate.
Second option is, Instead of getting TDS deducted at a higher rate, an NRI seller can apply for lower/NIL TDS deduction certificate to his assessing officer/income tax officer depending on his capital gain tax. Then the buyer shall deduct TDS at the same rate mentioned in the certificate.
In case, an NRI wants to repatriate the sale proceeds or refund amount received from income tax department then his bank will ask him to submit 15ca and 15cb certificate along with other documents.15cb certificate is a certificate from Chartered Accountant (CA)while Form 15ca is the information given by the remitter.
Important point:
- 1. Please make sure to file a tax return in India if you have sold a property in India. This becomes inevitable especially when you are planning to repatriate the sale proceeds. Otherwise there are huge chances that you will get a notice from Income tax department asking reason of non –filing or about the source of money which is remitted outside India.
- 2. If you are buying a property from an NRI seller then you shall have TAN no. If you don’t have then you can apply for it online.
3. Filing Lower/NIL TDS certificate is an online process now. Time to get a certificate depends on the time taken by assessing officer to respond. Normal time to get a Lower/NIL TDS certificate is one to two months after applying for it.
Disclaimer: Being an NRI, you may not be in touch of Indian rules and regulations. You may be getting different views and it might sound confusing to you. In this article, I tried to explain the process in layman language just to give you a rough idea of the process. Please note, facts and figures of each case are different and we advise you to take professional advice to know tax implications in your case while selling a property in India. This article is just to make you understand very basics of the process in a simple way.
Please do let me know if you still have any questions related to above. You can write to me at ushma@nricaservices.com or call/whatsapp me at +91 9910075924.