Tax rate and the relevant provisions applicable to the NRI selling property in India

The selling of immovable property i.e land and building by the non-resident is becoming common in megacities like Delhi, Gurgaon, Mumbai and Bangalore. People are being shifted to foreign countries permanently and they are selling their properties and taking the sale consideration out of India. Selling property is a time taking process and it needs affords to find a buyer who can offer a good amount of money for the immovable property. The buyer takes extra caution when he buys property, especially from the NRI.

When the property is final and the buyer is ready to pay the sale consideration to the NRI, compliance with a TDS deduction on the purchase price is also added additional burden. The income tax law imposes liability on the buyer to deduct TDS on the purchase price of immovable property. Compliance is easy when the seller is a resident because a single TDS return form cum challan is filed and deposited on the filing portal. The buyer simply needs to deduct 1% TDS on the purchase price if the seller is a resident. Form-26QB is applicable for the resident seller where the particular of buyer and seller like PAN number, personal details and email address and mobile number are filed, Also the details of immovable property are filed which is being transacted by the buyer and seller.

Whereas TDS deduction, if the seller is a non-resident, is a tedious task. The number of queries and doubts arises in the mind of buyers and sellers. A few questions are as below:

  1. What is the rate of TDS in case the immovable property is sold by a non-resident?
  2. Will a single return cum challan be filed if the seller is an NRI?
  3. When TDS should be deducted?
  4. Can NRI get a lower deduction certificate from the income tax authority?
  5. What procedure should the NRI follow to refund the excess TDS deduction?
  6. Is a buyer need to apply for the TAN number if the seller is a non-resident?

Let us answer all the important questions one by one.

1. What is the rate of TDS in case the immovable property is sold by a non-resident:

The TDS rate is 20% in case of long term capital assets, if the seller of the property is a non-resident. The rate of TDS is further increased by surcharge and cess. The rate of the surcharge depends on the amount of sale consideration. And the cess rate is 4%. It is important that TDS is deducted and deposited under section 195 of the income tax act. Section 194IA is applicable if the seller is a resident. We often see that buyers make a mistake by depositing the TDS under section 194IA which is incorrect. For non-residents, section 195 is applicable, and TDS is separately deposited by using the challan.

Rate of surcharge

Property sale priceLong Term Capital Gains TaxSurcharges
Rs. 50 Lakhs to Rs. 1 Crore20%10%
Rs. 1 Crore to Rs. 2 Crores20%15%
Rs. 2 Crores to Rs. 5 Crores20%25%
Above Rs. 5 crores20%37%

2. Will a single return cum challan be filed if the seller is an NRI?

No, a separate challan is to be deposited with the bank. You have 2 options to deposit the TDS of the non-resident. Either you can use an online banking system or go to the bank and submit the challan offline. Once the challan is submitted and the bank assigns you the challan number with the date, you can file a TDS return by using relevant form.

3. When TDS should be deducted?

The income tax act says that TDS should be deducted when the buyer makes a payment or credited to the non-resident seller in his books. Practically buyer deducts TDS when he makes a payment. Extra caution should be made because payments are made in instalments, the buyer often makes mistakes in TDS deduction and the late deposit of TDS may invite interest liabilities.

4. Can NRI get a lower deduction certificate from the income tax authority?

If the non-resident calculates that his liability of income tax on the selling of immovable property is not much high and he will get an income tax refund after income tax refund which is a complete blockage of funds in form of TDS or he has incurred a loss on the sale of the property then he can apply lower deduction certificate in Form 13. The application will be filed online and the department takes action on your application within 30 days.

5. What procedure should the NRI follow to refund the excess TDS deduction?

There is a simple procedure that the NRI should file an income tax return and claim the refund of excess TDS deduction.

6. Is a buyer need to apply TAN number if seller is a non-resident

Yes, TAN number is mandatory to file TDS return. In the case of a non-resident seller a challan cum return is not submitted. There is only one way, apply TAN number and file TDS return using that Tan number.

7. Is the non-resident taxpayer required to file income tax return in India?

If the total income of the non-resident taxpayer including income from capital gain exceeds the maximum amount which is not chargeable to tax, then NRI is liable to file his income tax return. If it is seen that selling of property may result in loss or TDS has been deducted at a higher rate then NRI can claim the refund by filing income tax return.

About the author: Nitin Bhatia is a qualified chartered accountant practising in Delhi, Gurgaon, Noida and Faridabad. He is the best CA in Gurgaon. During his professional journey, he has gained advanced experience in International Taxation, Transfer Pricing, Expatriate Taxation, Corporate Taxation, Domestic Taxation and litigation matters. International Taxation and Domestic taxation are his study topic, and he is deeply involved and updated with the recent judicial pronouncements. It helps him to give efficient and legitimate tax planning to his clients.

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