Lower Tax Certificate on Sale of Properties by NRI
As per Section 195 of the Income Tax Act, payment to a Non resident, be it sale consideration towards the sale of property, Rent, Interest, Professional fees, commission, royalty, etc., is subject to Tax Deduction at Source (TDS).
How much TDS is to be done in case of sale of property or on Rental income?
Suppose, an NRI sells a flat in Bangalore for Rs.90 lakhs, the buyer of the property has to deduct TDS at 22.88% (FY 2018-19).
In order to reduce the TDS burden, the seller of the property can apply to the department to issue a certificate for deduction of lower rates or no deduction of tax.
Frequently Asked Questions
How to define a Residential status for NRI?
- If an Indian citizen is spending at least 182 days out of India
- The person is in India for 2 months in the previous year and has lived in India for entire one year in last four year preceding to Previous year
- His Residential status can be said as NRI
- For CIO (Citizen of Indian origin) & Erstwhile PIO (Person of Indian Origin) only 1st condition is applicable.
Lower TDS Application is processed Online or Offline?
Currently the process is upgraded to Online Application by filing form 13 and submitting an attachment, However, post upload physical documents also need to be deposited duly signed. Still, we need to follow up with jurisdictional Assessing Officer (Income Tax Officer) a multiple time and also need to submit supporting and information for queries raised by him. With our network of associates all over India, we are well coordinated with every IT office in India.
What is rate of TDS Under section 195 on sale of property for NRI?
For an Indian NRI TDS rate U/s 195 is 22.88% i.e. 20% TDS plus 10% Surcharge & 4% Education Cess, of Sale or agreement value. While 1% TDS rate is only applicable for resident property sellers and not in case seller is NRI or CIO card holder. This is rate is same as Capital gain tax rate for NRI tax payers.
What if I declare myself Resident how IT dept. will come to know?
Never try to do this, although we have heard many NRI doing this, and proudly claiming that they got complete payment without an issue. However, considering that the IT can easily get you taxes residency status using you bank details or Passport visa details. The follow up consequences will be terrible, you will not only liable to pay tax at a higher rate but also get penalties along with imprisonment for mis-declaration. Apart from you the buyer will also be in trouble and can face similar consequences. So never take a short cut instead take proper procedure and obtain NIL / Lower TDS deduction certificates.
What is Long term Capital gain tax on the sale of NRI Property?
When Property is held for a period more than 24 months then profit arrived on such properties are called long-term capital gain. While if the property is sold before 24 months it is called short-term capital gain and tax paid on that is called Short term capital gain tax which is currently 34.2% for NRI person without any indexation.
Do an NRI need to be present for lower deduction certificate?
Not exactly, He can authorize someone on his behalf and get it done from his country of current residence. You can authorize Tax Assist to take care of end-to-end TDS proceedings.
Whose responsibility to take lower TDS?
It is seller responsibility to take lower TDS / NIL TDS certificate and submit to the buyer.
Whose responsibility to deduct and pay TDS?
It is the buyers’ responsibility to deduct and deposit TDS in Property.
What is NIL or Zero TDS Certificate or No TDS deduction certificate?
When Income tax department stating No TDS is required to be deducted issues a TDS certificate, then it is called NIL TDS or Zero TDS Certificate or Non TDS deduction certificate. In such situation seller of the property gets complete sell to proceed without any deduction, Not even 1% Deduction. This can happen on the basis of Capital gain calculation which is prepared by a CA or Expert in Capital gain matters.
What is TDS Exemption certificate Under section 197?
It is another name of NIL or Zero or No tds certificate issued to NRI Property seller.
How to get TDS Exemption certificate for NRI Sell of Property?
To get NIL or No TDS Certificate, a calculation need to be submitted along other documents to satisfy Assessing officer that there is no Capital gain is arising from the given property sale.
What if Lower TDS application gets rejected?
In that case, TDS will be required to paid however the NRI person can claim a refund by filing IT Return. In such a situation, we will assist you in Filing the return and also liaison with IT Department for timely refund issue directly to your NRI Accounts. Fees can be charged based on work scope.