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Introduction
Selling property in India can be a complex process, especially for NRIs (Non-Resident Indians) who need to navigate through various tax regulations. NRIs planning to sell their property frequently ask about the TDS (Tax Deducted at Source) rate applicable to such transactions. The confusion arises because of differing answers found on Google and from various experts. Some say 1%, others mention 20%, and still others suggest 30%. This blog post aims to clarify the TDS rates applicable in different scenarios and why it is crucial to understand these rates before proceeding with the sale.
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Understanding TDS Rates on Property Sales
The TDS rate on property sales depends on the type of capital gain, which is determined by how long you have held the property. Let’s break it down:
Long-Term vs. Short-Term Capital Gains
1. Long-Term Capital Gains (LTCG):
- If you have held the property for more than two years, the profit from the sale is considered a long-term capital gain.
- The TDS rate on long-term capital gains varies based on the sale price of the property.
2. Short-Term Capital Gains (STCG):
- If you have held the property for less than two years, the profit is considered a short-term capital gain.
- The TDS rate on short-term capital gains is higher compared to long-term gains.
Important Points to Remember
- TDS is an advance tax, not the final tax. If you end up paying more TDS, you can file an income tax return to get a refund. However, it’s always better to avoid overpaying and then waiting for a refund.
- The Income Tax Department provides an option to file Form 13 to get a lower TDS or nil TDS certificate if your calculated capital gain tax is less than the applicable TDS rate.
- A nil TDS certificate means no TDS will be deducted if you are selling the property at a loss or with no capital gain.
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Detailed TDS Rates Based on Property Value
Long-Term Capital Gains
For properties held for more than two years, the TDS rates are as follows:
Property Value Less than ₹50 Lakhs:
- TDS Rate: 20.80% on the entire sale value.
- Example: If the property is sold for ₹1 crore with a capital gain of ₹30 lakhs, TDS is deducted on ₹1 crore.
Property Value ₹50 Lakhs to ₹1 Crore:
- TDS Rate: 22.88% (20% base tax rate + 10% surcharge + 4% education cess).
Property Value ₹1 Crore to ₹2 Crores:
- TDS Rate: 23.92%.
Property Value ₹2 Crores to ₹5 Crores:
- TDS Rate: 26%.
Property Value Above ₹5 Crores:
- TDS Rate: 28.50%.
Short-Term Capital Gains
For properties held for less than two years, the TDS rates depend on the net capital gain:
Net Capital Gain ₹2.5 Lakhs to ₹5 Lakhs:
- TDS Rate: 5.20% (5% base rate + 4% education cess).
Net Capital Gain Above ₹5 Lakhs:
- The TDS rate increases progressively by 5% for each additional ₹2.5 lakhs of net gain.
Property Value ₹50 Lakhs to ₹1 Crore:
- TDS Rate: 34.32%.
Property Value ₹1 Crore to ₹2 Crores:
- TDS Rate: 35.88%.
Property Value ₹2 Crores to ₹5 Crores:
- TDS Rate: 39%.
Property Value Above ₹5 Crores:
- TDS Rate: 42.74%.
Without a lower TDS certificate, you could end up paying nearly 42% of your property’s sale value in TDS.
Steps to Apply for a Lower TDS Certificate
Planning and Documentation
1. Advance Planning:
- Apply for a lower TDS certificate at least 30 to 45 days before the sale.
- Gather all necessary documents related to the purchase and sale of the property.
2. Filing Form 13:
- Submit Form 13 to the Income Tax Department for a lower or nil TDS certificate.
- Ensure all documents are ready to avoid delays.
Token Money and Down Payment
Token Money:
- Acceptable before applying for the lower TDS certificate.
- Generally ranges from ₹1 lakh to ₹5 lakhs.
Down Payment:
- Should be taken after filing the application for a lower TDS certificate.
- Any payment received before filing will be subject to the higher TDS rates.
Conclusion
Understanding the exact TDS rate on the sale of property for NRIs is crucial to avoid paying excess tax and the subsequent hassle of seeking refunds. By planning ahead and applying for a lower TDS certificate, you can ensure a smoother transaction and retain more of your sale proceeds. If you have further questions or need assistance with the procedures, feel free to leave a comment.
Stay tuned for the next post in this series, where I will cover more topics related to NRI property sales, including gifting and inheritance.
Thank you for reading!