TDS Rules When Buying A Property From NRI Sellers

The rules and regulations pertaining to NRI properties in India may vary depending upon the situation. While dealing with NRI property selling, a lot of rules are required to be followed. In case you are buying property from an NRI seller, these rules become much more stringent and pertinent from the point of view of taxation. It is the primary responsibility of the buyer to deduct TDS at appropriate rate, failure of which will lead the buyer to pay penalty and interest.

NRI lawyers are compliant with the TDS implications for NRIs who wish to sell their property in India.

Two concepts that need attention while buying a property from NRIs are “capital gains” and “TDS”.

Capital Gains

Any profit that arises from the sale of ‘capital assets’ is called capital gains. This comes under the category of ‘income’ as per the Income Tax Act of 1961. The capital gains can be short term or long term depending upon the time period for which the assets were held by the seller.

  • Long term capital gains (LTCG) refer to the profit earned from selling property which was in possession for more than 2 years.
  • Short term capital gains (STCG) are defined as any profit earned by selling a property which was in possession for less than 2 years.

Computation Of Capital Gains

Although it is the responsibility of the seller to inform about the amount, the computation of capital gains should never be done by the seller himself. Computation is always done by the Income Tax officer who will intimate the seller by giving a certificate, mentioning the computed capital gains. It usually takes 30 days to obtain the certificate.

TDS On Capital Gains

The buyer of the property deducts the TDS at an appropriate rate and pays it to the government.

As per section 195 of the Income Tax Act, when a property is bought from an NRI then TDS is deducted on capital gains and paid by the buyer. Rules regarding TDS are:

  1. TDS is deducted whenever any payment is made to the NRI for purchase of the property. TDS will also be deducted, if any advance is being paid to confirm the deal.
  2. The transactional value of the property is irrelevant in the case of TDS deduction.
  3. TDS is 20% on LTCG and 30% on STCG.
  4. The amount of TDS deduction should always be mentioned in the property sale agreement.
  5. TDS should always be deposited within 7 days from the end of the month in which the TDS has been deducted otherwise an interest of 1% - 1.5% per month is applicable.
  6. TDS can be deposited online or through any bank branch.

TDS Return

After depositing TDS, TDS return on Form 27Q needs to be filed. TDS return is filed within 31 days from the date of the quarter. A penalty of INR 200 per day is applicable for delay in filing TDS return.

When the TDS return is filed, the buyer needs to fill a sperate form i.e. Form 16A which is known as TDS Return Certificate. Form 16A states that the buyer has deposited the TDS with the seller.

Property lawyers assist NRIs in matters related to selling their property in India. NRIs can seek assistance on repatriation advice, tax advice, and other compliance advice.