How to Claim NRI Lower or NIL TDS certificate

Ques: Why NRI should apply for short or nill deduction of TDS?

Sol: Many benefits can be obtained by claiming a lower rate TDS certificate. It will not only save NRI’s opportunity cost on such TDS amount which would have deducted TDS by the recipient of services but also it will save NRI the mammoth hassle of obtaining a refund at a later stage by the filing of return. You may find the theory on the internet on this subject; but, even now & then many friends like you, are keep asking me questions relating to the practical and procedural parts for completing the task successfully. To give a complete understanding, I am representing a thorough picture.

 NRI Lower or NIL TDS certificate

However, before that let me tell you a few important terms which may not be related to this subject however it is very important to understand, being NRI, are about to sell the property.

Ques: Whether the provision of income tax is same for residents and non-resident as sellers?

Sol: Let’s first understand the applicability of section 194IA or 195 for deducting TDS under the income tax act, 1961.

Friends, I have seen many times, where the buyer has deducted the wrong amount of TDS and then seller and buyer, both have to face many problems.

As per section 194IA of the income tax act, where the property is being sold for Rs.50 Lakhs or more then the buyer shall deduct the TDS @ 1% on the sale consideration.

But this section will apply only when the seller is a resident Indian. That’s why I’m trying to give you attention here. Hence, if you are an NRI, you are not eligible to apply section 194IA instead the buyer shall have to deduct the TDS under section 195.

Now, the buyer will deduct the TDS. So, normally 10% rate has been used under section 195 but do not confuse here. In the case of the sale of property, TDS is all dependent upon the nature of the capital gain i.e., it may be long-term or short-term capital gain and tax treatment is different in both cases. 

Ques: What are Long term capital assets and short-term capital assets?

Sol: As we know that of the when the buyer holds the property for a period of more than 2 years from the date of acquisition, it will be a long-term capital asset otherwise the same shall be treated as short-term capital assets.

Normally, the date of the registry is being used to decide the date of acquisition.

Ques: What is the Tax and TDS rate is applicable on the sale of the property?

Sol: Capital gain on sale of property

In the case of LTCG, tax rate and TDS rate shall be applicable as follows:

Particulars Total Income
Less than 50 Lakhs 50 Lakhs to 1 crore More than 1 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%

5 tips sell of property

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

In the case of STCG, the surcharge also be added to the rate as per the general rate applicable to the assessee.

If Mr. Nikhil (NRI) had sold his property in India of Rs.10 Crore, then the buyer shall deduct the TDS almost 23% from sale consideration i.e. Rs.10 crore, and which the buyer shall deposit to the government account. 

Ques: Whether the TDS is deducted capital gain amount or on the sale consideration?

Sol: Well, it is a kind of subjective question that TDS will be deducted on the capital gain amount or the sale consideration amount. (NOTE: I’m mentioning this question only with a view to section 195. Under section 194IA, TDS shall always deduct on the sale amount).

Ques: What is the procedure to apply for short or nil deduction?

Sol: As per the procedure, the seller can request his assessing officer to compute his capital gain on the sale of immovable property, and AO may compute the tax and issue a certificate to him which provides the details about the capital gain amount. In this case, the seller should have to give a copy of such certificate to the buyer and the buyer would deduct the TDS on the capital gain amount.

If In case, the NRI did not provide the certificate to the buyer or he himself calculate the capital gain then the buyer would require to deduct the TDS on the sale consideration amount and not on the capital gain amount.

So, till now we have understood about meaning of long-term and short-term capital assets, the applicable tax rates applicable on both kinds of gains, amount of deduction, TDS deduction rate. Now, we will discuss our main topic which is taking the Nil and lower TDS certificate.

 If the excess amount of TDS has been deducted by the buyer, then It is true that you can claim a refund at the time of filing of return but it’s a very lengthy process and it will also block your capital. 

This article will give you the understanding that if NRI feels that Capital gain on sale of the property is being lower than the value on which TDS would be deducted by the buyer then you can apply for the lower TDS certificate to Assess officer. Also, in case, if you are confident that on sale, there will be going to be loss on the sale of property in India then also, you can also request the Nil rate of TDS certificate from the department.

As we have seen above the tax rate on LTCG is very high which is almost 23% of the consideration.

For NRI there are also other compliances that he has to follow up for selling the property in India. So, it is advisable for NRI that to take assistance from a CA before making any deal of selling of property. Although, they will charge consulting fees but trust me that’s going to be worth it. 

Earlier, there was an amendment made in the provisions in the act which make it possible for the NRI online on the income tax portal to request for the lower deduction of TDS or nil-rated TDS certificate.

As we know that a permanent account number is an alphanumeric number by which the income tax department can identify the taxpayer. However, for the NRI, the taxpayer’s jurisdiction is different from the normal jurisdiction and it is called international jurisdiction. Now, for applying such a lower rate of TDS certificate or Nil-rated TDS certificate, NRI’s PAN must be in the international jurisdiction. It is seen that the PAN of NRI is lying in the local jurisdiction. 

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

For this, you will have to file 2 letters out of which 1 letter would be sent to your existing AO which is under the local jurisdiction, and apply him to transfer your PAN to international jurisdiction and in the next letter, NRI shall request him to issue NO objection certificate (NOC) that he has accepted such transfer of PAN from local jurisdiction officer. 

The whole process may take 15 to 20 days, so if NRI has done this before he has identified the buyer then it will save his 15 to 20 days because it is seen many times that the buyer has canceled the deal when the NRI could not complete all the obligation of the deal within the specified time.

Lower TDS Certificate

Ques: What are documents are required for applying short or Nil TDS certificate?

Sol: Following is the list of documents that NRI would require for applying for the certificate: 

  • NRI’s Permanent Account Number (PAN Number)
  • Original Purchase Agreement which means title document of the said property.
  • No objection certificate (NOC), issued by the previous owner of the property.
  • Copy of approved plan and occupation certificate, which would be issued by Municipal Corporation of development.
  • Other necessary Documents.

This is the most crucial step in the whole process. Under this step, NRI has to apply in form 13 for lower deduction of TDS to the income tax department as per section 197 of the Income-tax Act, 1961, and the same can be filled online in the TDS portal and upload the above-specified documents which state that the tax to be paid.

It is noticed in many cases; AO has delayed the issuance of certificates due to delays in receiving of TAN number. These all happen due to coordination issues between buyers and NRI. 

Once you have received such a certificate from the department, you will have to forward one copy of the certificate to the buyer and the buyer shall further send it to his bank, and then only after receiving such certificate, the bank shall disburse the amount to your bank account.

I hope this article will give you an understanding of capital gain, tax rates, deductions, and form 13. Still, if you have any doubt, you can always contact us.

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