How To Claim Nil Or Lower TDS On Sale Of Property 

There are many benefits of obtaining a lower rate TDS certificate. It will help you in earning interest on such amount which would be otherwise deducted as TDS by the Buyer of the property and ultimately that would otherwise get blocked and also the deductor shall have to bear the mammoth hassle for obtaining a refund at a later stage by the filing of return. However, there are many assessments who are availing this facility successfully. There is a bunch of theories on the internet on this subject; however, even now & then I keep facing questions, from my friends in my group as well as from clients, on the practical and procedural part for completing the task successfully. With that inattention, I am representing a thorough picture.

how to claim nil or lower TDS on sale of property (1)

Before explaining the procedure for obtaining the Nil or lower tax certificate, let me tell you some of the very important terms which have some connection with this procedure and it is necessary to understand the legal procedure when you, being an NRI, are about to sell the property.

The first thing kept in mind, is the applicability of section 194IA or 195 for deducting TDS under the income tax act, 1961.

Friends, I have seen in many cases, where the buyer has deducted the wrong TDS by which the seller and buyer, both have to face many problems.

As per section 194IA, when the property is being sold for a consideration that exceeds Rs.50 Lakhs then the buyer is required to deduct the TDS @ 1% on the sale consideration.

However, this section will apply only to those cases, when the seller is a resident Indian. That is why I’m trying to give you attention in this case. Hence, if you are an NRI then this section shall not be applicable for you instead the buyer shall have to deduct the TDS under section 195.

Now, the next question arises that at what rate, the buyer will deduct the TDS. So, generally, under section 195, a 10% rate has been prescribed but please do not confuse here. In case of sale of the property, the deduction of TDS all depends upon the nature of the capital gain i.e. it can be long term capital gain or short term capital gain and the tax treatment in both cases has been differently specified in law. The details of the rate of deduction have been prescribed in detail.

Here, another 2 question arises that what long term capital asset and what is short term capital assets.

In respect of capital assets being land or building, it shall be treated as long term capital asset when the buyer holds the property for a period of more than 2 years from the date of acquisition. In simple words, where the period of holding is more than 2 years then the gain on sale of such land and building shall be treated as long term capital gain and when it is transferred within 2 years from the date of acquisition, then it shall be called as short term capital gain.

Generally, the date of registration is being considered as the date of acquisition.

Now, you know about the long term and short term capital gain, so let’s talk about the tax rates on capital gain.

Capital gain on sale of property

The Tax rate on Long term Capital Gain is 20% which shall further be increased by the surcharge and Cess @ 4% which shall become approx. 23%.

If there is a short term capital gain then the normal slab rates shall be applicable which can be up to 30% which would be further increased by the surcharge and Cess @ 4% which shall become approx. 33%.

Although, this tax rate will get changes if a surcharge is there. As per the latest budget, the rate of surcharge is also changing as per the value of the total income of the assessee. Let me defined the whole rate chart in tabular form:

Particulars Total Income
Less than 50 Lakhs 50 Lakhs to 1 crore More than 1 Crore but does not exceed 2 Crore
LTCG Tax 20.00% 20.00% 20.00%
Plus Surcharge 0.00% 10.00% 15.00%
Total 20.00% 22.00% 23.00%
Plus Cess 4% 4%     4%
Applicable TDS rate 20.80% 22.88% 23.92%

TDS CERTIFICATE

Note: Surcharge is calculated on the Tax rate and not on the income.

In case of short term capital gain, the surcharge shall be added to the rate as per the general rate applicable to the assessee under income tax act.

Being NRI who wants to sell the property in India, has to face the TDS i.e. Tax deducted at the source which is 22.88% on the sale value of the property. 

So for example: If Mr.Nikhil (NRI) has sold a property in India of Rs.10 Crore, then the buyer will deduct the TDS almost 23% from sale consideration i.e. Rs.10 crore and then such buyer shall deposit it to the government account. 

Now, there is one more point which is important to note that on which amount, the TDS should be deducted by the buyer.

Well, it is a subjective question. The TDS can be deducted on the capital gain amount or the sale consideration amount. (NOTE: I’m talking only about section 195. In the case of section 194IA, TDS always deducted on the sale consideration amount).

In case, the seller requests his assessing officer to compute his capital gain on the sale of immovable property, then the AO compute and issue a certificate to him which explains the details of capital gain amount. In such a case, the seller should give a copy of such a certificate to the buyer and the buyer shall deduct the TDS on the capital gain amount.

In case, the seller did not give the certificate to the buyer or himself compute the capital gain then the buyer is required to deduct the TDS on the sale consideration amount.

So, we have talked about the meaning of the long term and short term capital assets, tax rates applicable to both kinds of gains, TDS deduction rate, amount of deduction. Now, we will discuss on our main topic about taking the NIl and lower TDS certificate.

Although, as and when you file your income tax return, you can claim the TDS as a refund. However, why you have to go in such a long process when there is another provision that exists under section 197 of the Income-tax Act, 1961. 

This section states that if you (NRI) feel that the gain on sale of the property is being lower than the value at which the TDS would be deducted on the gross value then you have a right to apply for the lower TDS certificate to Income tax officer. Also, in case, if you are sure that on sale, there will be going to be a loss on the sale of property in India then also, you can also apply for the Nil rate of TDS certificate from the Income Tax department.

This is the brief about the tax implication on the sale of property in India by NRI. As you can see that the tax rate is very high i.e. almost 23% of the consideration amount shall be deducted by the buyer.

For NRI there are so many compliances that he has to follow for selling the property in India. So it is advisable for NRI to take the advice from a chartered accountant before entering into any deal of selling of property.

Recently, there was a change in the provisions in the law which make it possible for the NRI to apply for the lower deduction of TDS or nil rated TDS certificate through online on the income tax portal.

As we already know that PAN number is an alphanumeric number by which the income tax department can identify the taxpayer. However, you will be surprised to know that for the NRI taxation and International Taxation, the taxpayer’s jurisdiction would be different from the local jurisdiction and it shall be called international jurisdiction. Now, for applying the lower rate of TDS certificate or Nil rated TDS certificate, your PAN must be in the international jurisdiction. In most of the cases, it is seen that the PAN of NRI is lying in the local jurisdiction. 

Hence if you are willing to apply for such a TDS certificate, then you must transfer your PAN number from the local jurisdiction to international Jurisdiction. 

For this, you have to file 2 letter out of which one shall be sent to your existing Assessing officer which is in the local jurisdiction and request him to transfer your PAN to the international jurisdiction and the next letter file to international jurisdiction income tax officer and request him to issue NO objection certificate (NOC) that you have accepted such transfer of PAN from local jurisdiction officer. 

The whole process can take almost 15 to 20 days, so if you do this before you have identified the buyer then it will save such 15 to 20 days because it has seen in many cases that the buyer has canceled the deal when the seller could not complete all the requirement of the deal within the prescribed time period agreed between you and them.

Though for applying the lower TDS or Nil rated TDS certificate, one has to attach many documents. Let me give you a brief about it.  If you want to know about the complete list then you may send us the Email or What’s the app your query. Following are the list of documents that NRI would require for applying the certificate: 

  • Your Permanent Account Number (PAN Number)
  • Original Purchase Agreement, i.e. title document of the said property.
  • No objection certificate (NOC), issued by the said previous owner of the property.
  • Copy of approved plan and occupation certificate, which would be issued by the appropriate authority, Municipal Corporation of development.
  • If you have bought the property before the financial year 2000-01, then a certificate from the valuation officer or from stamp duty authority which specifies the value of the property.
  • Other necessary Documents.

nri tax

This step is the most crucial step in the whole process. In this step, you have to apply for lower deduction of TDS in form 13 to the income tax department as per section 197 of the Income-tax Act, 1961 and upload the above-specified documents along with the computation of Income as a supporting documents which states that the tax to be paid is much less than the 23% of the consideration value. When you have done this then only after verifying all the documents, the income tax officer shall issue the certificate.

In many cases, we have noticed that the department has delayed the issuance of certificate due to delay in receiving of TAN number or delay in receiving documents. These all happen due to the coordination issue between buyer and seller. So, in this case, we are giving you a bonus tip.

Our firm is also offering the packages for the buyer compliances and seller compliances in which we will handle end to end compliance i.e. starting from the deal to the completion of a transaction.

What would you do, once you received the certificate form the income tax department? You will have to send one copy of the certificate to the buyer and the buyer shall further send it to his bank and only after receiving such a certificate, the bank shall disburse the consideration amount to your bank account.

I hope this article will help you. Still, if you have any doubts about this issue, then you can contact us on the number, mentioned at our site. 

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