TDS should be deducted from the sale price of an NRI-purchased property, and the rest should be given to the NRI seller.
If you buy a property from a Non-Resident Indian (NRI), you must deduct tax (TDS) as required by Section 195 of the Income-tax Act of 1961. (ITA).
When you make a payment to an NRI for the acquisition of a property, you must deduct tax. This is only valid if an advance is being paid. As a buyer, you must deposit TDS with the Income Tax Department.
TDS should be deducted from the sale price of an NRI-purchased property, and the rest should be given to the NRI seller. There is no maximum tax deduction amount. If the property is purchased from a resident, no tax is needed if the sale price does not exceed Rs 50 lakh (Section 194IA).
How Are Capital Gains Calculated On Property Sales?
An NRI’s property is classified as a capital asset, which can be either a long-term capital asset or a short-term capital asset. Long-term capital gains (LTCG) tax applies when a property is sold after two years from the date it was purchased. However, if it is held for less than two years, it is subject to short-term capital gains (STCG) tax.
The Following TDS Rates Apply To The Sale Of An NRI-Owned Property:
- Long-term capital gains LTCG tax on property sold after more than two years: 20%
- The relevant Income Tax slab rates for NRIs apply to the STCG tax on the sale of a property held for less than two years.
Surcharges and cessation are also levied on capital gains.
Points Concerning TAN Numbers, TDS Payment, And TDS Return
The buyer of the property must comply with Section 195 of the ITA as well as the following statutory reporting requirements:
1. Obtain TAN: As a buyer of property from an NRI, you must obtain a Tax Deduction and Collection Account Number (TAN No.) in order to deduct TDS.
2. Deduct TDS: When you deduct TDS as a buyer, you must deposit it with the Income Tax agency within seven days of the end of the month in which the deduction was commenced.
3. TDS to be deposited using Challan No./ITNS 281. TDS payments can be made electronically at the following website: e-Payment for TIN (egov-nsdl.com)
4. Submit TDS Return: After paying taxes, the buyer must submit a TDS return. It must be submitted in the Income Tax Department’s Form No. 27Q. A separate Form No 27Q must be provided for each quarter in which TDS has been deducted. The return must be submitted to the government within 31 days of the end of the fiscal quarter in which the TDS was deducted.
5. Issue Form No. 16A: As a final point, you as a buyer must provide Form No. 16A to the Non-resident Indian who is selling the property.
Lower Deduction Or No Deduction Of Tax
The Non-Resident Indian seller might appeal a tax deduction at a reduced rate from the Income Tax Jurisdictional Assessing Officer. The resident buyer of the property may apply (under Section 195(2) of the Income Tax Act) to determine the portion of income liable for a tax deduction.
The NRI seller may also apply in Form 13 for a lower/nil TDS on such receipts (under Section 197).
The Assessing Officer will issue a certificate stating the amount of tax deduction, on which the buyer of the property will be required to deduct TDS on the total sale consideration.
If neither the buyer nor the NRI seller makes such an application to identify the amount on which tax is deductible, the tax must be deducted from the total sale price of the property.