Introduction: In this blog post, we will provide an easy explanation of TDS (Tax Deducted at Source) for property sales by NRIs (Non-Resident Indians) in India. We will cover the basics of TDS, its applicability, rates, and important considerations for both buyers and sellers. Let’s dive in!
What is TDS and its Applicability: TDS, or Tax Deducted at Source, is a tax collection mechanism where the buyer deducts a certain percentage of the transaction amount as tax and remits it to the government on behalf of the seller. TDS is applicable when an NRI sells a property located in India.
Differentiating Capital Gains: Capital gains from property sales are categorized as long-term or short-term based on the holding period. If the property is held for more than 2 years, it is considered long-term capital gains. If held for 2 years or less, it is considered short-term capital gains.
TDS Rates: The TDS rates for property sales by NRIs are as follows:
- Long-term capital gains: 20% of the gain amount.
- Short-term capital gains: Taxed at the applicable income tax slab rates for NRIs based on their total taxable income in India.
Deductible TDS on NRI Property Sale: If the property is sold before 2 years of ownership, a 20% TDS is deducted. However, if the property is sold within 2 years, a 30% TDS is applicable.
TDS Deduction and Compliance: The buyer is responsible for deducting the TDS amount based on the seller’s residential status. For resident Indian sellers, the TDS rate is 1% of the sale price, while for NRI sellers, it is based on the money obtained by the seller. The buyer needs to deposit the TDS amount with the income tax department.
Lower TDS Certificate (Form 13): NRIs can apply for a lower TDS deduction by submitting Form 13 to the income tax department. If approved, the buyer will deduct TDS accordingly. This helps reduce the TDS liability for the seller.
Remittance of Funds: To repatriate the funds earned from the property sale outside India, NRIs need to submit Form 15CA and Form 15CB to the bank. These forms declare the source of funds and ensure compliance with remittance regulations. NRIs can repatriate up to $1 Million (USD) per calendar year.
Avoiding Double Taxation: India has Double Taxation Avoidance Agreements with several countries to prevent double taxation on property sales. NRIs can claim a tax credit for taxes paid in India while filing taxes in their resident country.
Conclusion: Understanding TDS for property sales by NRIs is essential to ensure compliance with tax regulations. Buyers need to deduct the appropriate TDS amount, while sellers can explore options for lower TDS deduction through Form 13. Seeking guidance from a qualified professional is recommended to navigate the process smoothly.