Applicability of TDS on Sale of Property by NRI in India: Things to be Taken Care of by the Buyer
The real estate market in India has been a popular investment choice for Non-Resident Indians (NRIs) looking to invest in their home country. However, selling a property in India as an NRI involves certain tax implications, particularly with respect to Tax Deducted at Source (TDS). In this article, we will discuss the applicability of TDS on the sale of property by an NRI in India and the things that a buyer needs to take care of to comply with the tax laws.
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Applicability of TDS on Sale of Property by NRI
As per the provisions of the Indian Income Tax Act, 1961, when an NRI sells a property in India, the buyer is required to deduct TDS on the sale proceeds before making the payment to the NRI seller. The applicable TDS rate is 20% of the sale consideration unless the NRI seller obtains a certificate from the Indian tax authorities for a lower rate or a complete exemption from TDS.
However, it’s important to note that the threshold for TDS on the sale of property by an NRI is different from that of a resident Indian. For NRIs, the threshold limit for TDS is INR 50 lakhs (INR 20 lakhs for transactions made before June 1, 2017), whereas, for resident Indians, the threshold limit is INR 50 lakhs for transactions made after June 1, 2016.
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Buyer’s Checklist
If you are a buyer purchasing a property from an NRI seller in India, here are some important things you need to take care of to comply with the TDS requirements:
1. Verify the NRI status of the seller:
As a buyer, it is your responsibility to verify the NRI status of the seller. You can do this by obtaining a self-declaration from the seller stating their NRI status, along with relevant supporting documents such as their passport, visa, and residency certificate.
2. Calculate the TDS amount correctly:
The buyer must deduct TDS (Tax Deducted at Source) amount at a rate of 20% of the sale consideration unless the NRI seller has obtained a certificate for a lower rate or a complete exemption from TDS. Make sure to calculate the TDS amount correctly and deduct the same from the sale consideration before making the payment to the NRI seller.
3. Obtain the TAN (Tax Deduction and Collection Account Number):
As a buyer, you must obtain a TAN (Tax Deduction and Collection Account Number) from the Indian tax authorities before deducting TDS on the sale of property by an NRI. You will need to quote this TAN in all the TDS returns and challans filed with the tax authorities.
4. Deposit the TDS amount on time:
After deducting the TDS (Tax Deducted at Source), you must deposit the same with the Indian tax authorities within the prescribed timelines. Taxpayers must deposit the TDS amount using the correct challan and quoting the TAN and other relevant details.
5. Issue Form 16B to the NRI seller:
After depositing the TDS (Tax Deducted at Source) amount, you must issue Form 16B to the NRI seller within 15 days from the due date of filing the TDS return. Form 16B is a certificate of TDS, which the NRI seller can use to claim credit for the TDS amount while filing their income tax return in India.
6. File TDS returns:
As a buyer, you must file quarterly TDS (Tax Deducted at Source) returns with the Indian tax authorities. Taxpayers must file the TDS (Tax Deducted at Source) returns within the due dates specified by the tax authorities
Conclusion
the sale of property by an NRI in India attracts the requirement of Tax Deducted at Source (TDS) by the buyer. The applicable TDS rate is 20% of the sale consideration unless the NRI seller obtains a certificate for a lower rate or exemption from TDS. As a buyer, it is crucial to verify the NRI status of the seller, calculate and deduct the correct TDS amount, obtain a TAN, deposit the TDS amount on time, issue Form 16B to the NRI seller, and file TDS returns in compliance with the Indian tax laws. By taking care of these important aspects, the buyer can ensure compliance with TDS requirements and avoid any potential penalties or legal repercussions.Â