Will : legal declaration of how a person wish his/her possession to be disposed after their death
Fund : An amount of money saved or collected for a particular purpose
Return : Profit or loss derived from an investment
Capital Gain : Increase in the value of the asset, so you will get the gain only if you sell that asset..
It is Total Assets of a person at the given point of time. That is buildings, investments and other assets s/he is having. Benefits will be enjoyed by his heirs after his death through his will.
Selling of a property has never been an easy job. Being an NRI can only mean the trouble is twice the amount.
Even if you find the right buyer to seal the deal, the complexities involving the TDS is unappealing.
If you don’t follow the procedures of TDS with care, you could end up paying a lot on tax. And if you don’t, Income Tax dept. will be on your back demanding even more.
Today, we’ll see what is behind these so called “complexities” and procedures of TDS on your Long Term Capital Gains (LTCG).
Are they really complex to understand for others, other than professionals?
Presuming you are an NRI, read this article to clear all your doubts on TDS on sale of property by NRI.
What is LTCG on real-estate for NRI?
Let’s get with the basics first. (LTCG stands for Long Term Capital Gain) is the gain (or profit) arising from the sale of immovable property by NRI, held for 2 years or more.
Ownership period lesser than 2 years is brought under STCG (Short Term Capital Gain).
Why TDS on Sale of Property for NRI?
TDS on sale of property is mandatory for everyone.
TDS must be deducted on all sale of properties regardless of Short Term or Long Term (Property value) Indian or NRI sellers.
As said above, in this article we will focus on NRI sellers and the TDS deducted on their sale of property.
Since it is not easy to make an NRI comply the tax rules of India, the Income Tax Department introduced the TDS method for LTCG.
For NRI sellers, the TDS is calculated in a different manner than it is calculated for a resident Indian seller. However, the Capital Gain tax rate for NRIs varies based on term of capital gain and the sale value of the property.
Note: If you are an NRI seller, you cannot claim the 1% TDS on LTCG. We will discuss the 1% LTCG tax later in this article.
Capital Gain TDS for NRIs u/s 195
On sale of property by NRI as seen above, the buyer is subject to deduct TDS u/s 195 of the Income Tax Act, 1961. The section 195 suggests two different rates of TDS for LTCG and STCG.
1. Short Term Capital Gain:
- The Short Term Capital Gain is the Capital Gain arising on the sale of an immovable property (real estate) held for less than 2 years of time.
- For Short Term Capital Gain, section 195 of the IT Act, 1961 mandates 33.99% TDS to be deducted by the buyer.
- This rate of TDS should be deducted irrespective of the sale value of the property.
2. Long Term Capital Gain:
Unlike the STCG, for LTCG the sale value of the property plays a major role in the calculation of TDS to deduct.
Three different LTCG TDS for NRIs is calculated on the basis of sale value of the property. They are as follows:
a) Less than ₹50 lakh:
If the sale value of the property is below ₹50 lakhs, the TDS to be deducted will be 20.8%.
b) For ₹50 lakhs – ₹1 crore:
The TDS to deduct is 22.88%, including surcharges and cess. You must note that this rate of TDS is for properties with sale value only up to ₹1crore.
c) For above ₹1 crore:
The TDS to deduct is 23.92%, including the surcharge and cess.
All the TDS rates mentioned above are inclusive of the surcharge and cess, as per April 01, 2018. See the table below for better understanding.
|Particulars||Below ₹50lakh||₹50lakh-₹1crore||Above ₹1 crore|
|Surcharget||Nil||10% of LTCG||15% of LTCG|
|LTCG Tax+ Surcharge||20%||22%||23%|
|Cess||4% of above||4% of above||4% of above|
|LTCG TDS (inclusive of all taxes)||20.8%||22.88%||23.92%|
Note: There is a huge misconception that if the property sale price is below ₹50 lakhs, there is no TDS. It is NOT true; TDS will be and must be deducted regardless of the sale price of the property.
Let me give you a clear picture of what to do if you are an NRI selling a long term property in India. And what will be the consequences if you fail to do so in the following sections.
What Every NRI Seller Must Do on Sale of Property
Prompt the buyer to deduct TDS before the sale of property.
You, an NRI seller, must inform the buyer the Capital Gain arising from the sale of this property.
The buyer will then deduct TDS on the Capital Gain amount which you informed.
Nevertheless, you should not come up with a figure of Capital Gain arising on the sale of property by yourself. The exact amount of Capital Gain arising must be calculated by an Income Tax Officer.
You should request the Income Tax Officer under whose jurisdiction your PAN comes, for the appropriate Capital Gain amount.
The Income Tax Officer in turn will calculate the Capital Gain from the available legitimate information you provide. The required information include: Sale Value of Property, Expenditure Incurred, Indexed Cost of Acquisition, Indexed Cost of Improvement and Exemptions (if any).
After calculating the Capital Gain, the Income Tax Officer will issue a TDS certificate describing the calculations of Capital Gain.
The NRI seller is supposed to give this certificate to the buyer to intimate the amount on which the TDS should be deducted. The buyer will deduct the TDS on Capital Gain as prescribed in the certificate.
But, what happens if an NRI seller fails to get a TDS certificate from the Income Tax Officer?
How will the buyer deduct TDS?
Before you say it—NO! The buyer will not skip the TDS deduction.
This is where the TDS deduction is going to affect the NRI seller very bad!
The Negative Impact of LTCG TDS for NRI
The deduction of TDS for NRIs on sale of property can have adverse effect on the NRI seller.
In cases where the NRI seller fails to provide a TDS certificate; the buyer is entitled to deduct TDS on the total sale price of the property.
Instead of calculating TDS for actual Capital Gain, accounting total sale price will increase the tax liability of NRI seller.
As an NRI seller you should prompt the buyer to deduct TDS on Capital Gain alone by giving the appropriate TDS certificate, instead of relying on the buyer’s calculations.
Otherwise, NRI sellers often end up paying more on TDS–resulting in capital loss instead of gain.
See this practical example below for better understanding.
Mr. Deepak is an NRI, residing in Canada for the past 3 years.
He bought a real-estate property in 2014 for ₹25 lakhs. And he is selling the same for ₹35 lakhs to an Indian buyer.
In 5 years, the indexed cost of acquisition of the property is ₹29.16 lakhs. Indexed cost of acquisition is nothing but increase in value of the property due to inflation.
In this case: if Mr. Deepak is not prompt about the TDS with the buyer, the buyer will deduct TDS on the total purchase value of the property.
Since the property purchase value is less than ₹50 lakhs, the TDS rate would be 20.8% for NRI, inclusive of surcharges and cess.
So, the deduction of TDS will be in the manner as shown below in the table.
|Purchase Price in 2014-15||₹ 25 lakhs|
|Indexed Cost in 2018-19||₹ 29.16 lakhs|
|Selling Price in 2018-19||₹ 35 lakhs|
|NRI TDS % u/s 195||20.8%|
|TDS Deducted||₹ 7.2 lakhs|
|Amount in hand after TDS||₹ 27.8 lakhs|
|LTCG||₹ -1.36 lakhs|
As you can see, the LTCG from the sale of property is minus ₹1.36 lakhs.
That is, instead of NRI Long Term Capital Gain, the TDS on sale of property has incurred a Long Term Capital LOSS to Mr. Deepak.
So, how could have Deepak avoided this loss on sale of property?
Is there a way? Yes!
TDS Refund For NRIS
An NRI, on the sale of a property, can claim a refund of TDS deducted in some special cases.
Sometimes, for NRIs the total income in India will fall under the tax exemption limit of ₹2.5 lakhs.
In such cases the NRI should be exempted from the deduction of TDS by the buyer. But often, the buyer deducts TDS for the sake of deduction; to play it safe. The buyers do so, since he will be liable to pay the tax after the transfer of registration.
If your total income in India is less than ₹2.5 lakhs, you can claim the TDS deducted by applying for TDS waiver.
You should apply for the TDS waiver with the income tax officer under whose jurisdiction your case falls, to claim a refund.
In some cases, if the NRI is re-investing the Capital Gain after the deduction of TDS, he can claim the TDS refund.
The re-investment can be in any form of property purchase or Capital Gain bonds purchase in India.
You can claim the refund by submitting the proof of property purchase to the income tax officer. The proof of purchase can be of either allotment letter or payment receipts of the purchase.
If you are US based NRI, then you need to report your property under FATCA. So that you can get limited tax exemptions on the immovable property through DATT (Double tax Avoidable Act) However, claiming TDS refund should never be preferable in place of correct tax deduction before the payment of TDS.
In the following section we will see all the ways an NRI can reduce TDS liability on sale of property.
LTCG TDS Benefits For NRI
Claiming a TDS refund after the deduction of TDS is tedious. But if there is a way to pay the lowest tax as TDS during the selling of property itself, wouldn’t you do it?
Yes, you can calculate and decide whether Nil TDS or lowest possible TDS that the buyer can deduct.
In this section we will see 3 ways you can lower/exempt your TDS liability.
i) Nil Tax Deduction Certificate:
The occurrence of Zero gain—or literally loss—on LTCG is possible more than you think.
You, as an NRI seller should be aware of this fact, since the loss on any long term will not be negligible.
We’ll take the example of Mr. Deepak here as well.
If Mr. Deepak was selling his property for ₹29 lakhs, TDS on the property would be ₹6 lakhs. And the effective loss on the sale of property will be same as the TDS ₹6 lakhs, since the selling price is same as indexed cost of the property.
Scenarios such as this happen when the real-estate market is down and you have no other go, to raise a fund.
In such cases, or if the Capital Gain is zero, you can apply for “NIL Tax Deduction Certificate”.
What should you do?
You must apply for the ‘NIL Tax Deduction Certificate’ with your income tax officer by submitting Form 13.
The income tax officer will check for the liability of tax with the information you provide in your application under section 197.
If your application is eligible for Nil Tax Deduction, the income tax officer will issue the ‘Nil Tax Deduction Certificate’.
After getting the ‘Nil Tax Deduction Certificate’ you should provide the buyer this certificate at the time—or before—the transfer of registration.
This will let the buyer know that by buying this property he is not liable to pay any tax for it, and will not deduct any TDS. In turn, the buyer will submit the certificate to the income tax dept. at the time of filing his income tax returns.
ii) How NRI Can Lower TDS on Property Sale?
Unlike in the above example; if there is no loss due to TDS on the sale of property, you have two options to go for.
One: You are willing to pay the actual tax in the form of TDS.
Two: You are willing to re-invest the LTCG instead of paying the TDS.
- a) Lower Tax Deduction Certificate NRIs
b) Tax Exemption Certificate for NRIs
We will discuss the condition to apply and how to apply for these certificates below with examples one after another.
a) Lower Tax Deduction Certificate for NRIs:
Without your knowledge, you could still be paying higher tax on TDS; even though there is no loss.
But how is that possible?
Let’s see a practical example that explains this case followed by the solution.
Consider this case of Mr. Kannan, who is an NRI living in UAE for 6 years now.
Kannan sold his property of 7 years for ₹1.2 crores, which he bought for ₹55 lakhs.
The buyer of the property deducted the TDS on the total selling price of the property. Instead of deducting TDS on the LTCG alone u/s 195 of the Income Tax Act, 1961, it will considerably reduce the LTCG amount.
Here, the LTCG and the TDS liability of it for Mr. Kannan is as shown in the table below.
|Purchase Price in 2011-12||₹55 lakhs|
|Indexed Cost in 2018-19||₹83.7 lakhs|
|Selling Price in 2018-19||1.2 Crores|
|NRI TDS % u/s 195||23.92% (1.2 crores)|
|TDS Deducted||₹28.7 lakhss|
|Amount in hand after TDS||₹91.3 lakhs|
|LTCG Received after TDS||₹7.6 lakhs|
Even though Mr. Kannan is receiving some Capital Gain, it is very less for a long term of 7 years.
What should you do?
If you find yourself in such scenario, you can lower your TDS on LTCG by applying for the Lower Tax Deduction Certificate.
Like seen in the ‘Nil Tax Deduction Certificate’ above, you must apply for the ‘Lower Tax Deduction Certificate’ with your respective income tax officer.
Provided that you are willing to pay the LTCG TDS, your income tax officer will issue the certificate. The certificate will denote how to calculate and deduct TDS for the sale of property in consideration.
Basically, instructing to deduct TDS only on the LTCG instead of the total selling price of the property.
You must provide the buyer the ‘Lower Tax Deduction Certificate’ so that he can calculate and deduct the lower TDS.
In case of Mr. Kannan, if he had provided the ‘Lower Tax Deduction Certificate’ before the transfer of registration, the TDS deduction would’ve been as shown in the table below.
|Selling Price in 2018-19||₹1.2 crores|
|NRI TDS % u/s 195||23.92% of ₹36.3 lakhs|
|TDS Deducted||₹8.68 lakhs|
|Amount in hand after TDS||₹1.11crores|
|LTCG after TDS||₹27.37 lakhs|
Hence, by providing a ‘Lower Tax Deduction Certificate’ in advance Mr. Kannan could have saved almost ₹20 lakhs from TDS deduction.
b) Tax Exemption Certificate for NRIs:
However, as an NRI if you are willing to re-invest the LTCG, you can request to be exempted from the LTCG tax.
You can request for this ‘Tax Exemption Certificate’ from the income tax officer before the transfer of registration.
The reinvestment can be either an immovable property, as real-estate in India or any Capital Gain Bonds in India. NRI can be exempt from tax by investing in tax free bonds in India.
In case of Capital Gain bond purchase, you should submit an affidavit to the income tax officer assuring you will invest the Capital Gain amount in Capital Gain bonds. On further examination, the income tax officer will issue the ‘Tax Exemption Certificate’ to be exempt from TDS.
Note: if you are receiving tax exemption by Tax Exemption Certificate, you must file income returns to the income tax dept. for that financial year.
Documents Required for LTCG TDS Benefits
For the LTCG TDS benefits, an NRI needs to apply for the Nil/Lower Tax Deduction Certificate or Tax Exemption Certificate as applicable.
To apply for these certificates, you will need to produce the following documents—but not limited to—to the income tax officer under whose jurisdiction your PAN No. falls.
- 1. Passport
3. Property Sale Agreement
4. Income Tax Returns
5. Bank Statements
You should also note that, the issuance of these certificates take up to 30 days on average. Plan your date of transfer of registration with respect to the applying date of such certificate.
Up to this, we have seen what you would need to do if you were selling a property as an NRI. But what if you want to buy a property as an NRI?
Let’s eliminate the doubts about it out of the way too.
TDS on Purchase of Property by NRI
TDS on purchase of property by NRI is much simple than what we discussed above under sale of property by NRI.
In this case, the only difference is you will be liable to pay the LTCG tax. And hence, you will have to deduct the TDS on the LTCG of the seller.
How Should an NRI Deduct TDS on Purchase of Property?
The deduction of TDS by either resident Indian or NRI depends on two things.
- i) Residential Status of Seller
ii) Purchase Price of Property
i) Residential Status of Seller:
You have to deduct TDS regardless of the residential status of the seller. However, the way to calculate TDS differ for residential Indians from that of the NRIs sellers.
For NRI Seller: For the sale of property by NRIs, the TDS has to be deducted as per the TDS rate prescribed by the Income Tax Act, 1961. Of course, we have seen the complete detailed procedure in the section above.
For Residential Indian Seller: In case if the seller is residential Indian, the TDS rate and the complexity is less and simple. However, since the purchase price of the property solely decides on the TDS rate, we’ll move on to that factor.
ii) Purchase Price of Property
Less than ₹50 Lakhs:
If you are an NRI buying property worth less than ₹50 lakhs, you do not need to deduct any TDS from the purchase amount.
The Income Tax Act, 1961 allows TDS exemption for Indian sellers on sale of property worth less than ₹50 lakhs.
The registrar will also verify the same at the time of registration of property.
More than ₹50 Lakhs:
In case if the purchase price is greater than ₹50 lakhs, TDS has to be deducted at 20% of the total purchase price of the property.
For example: If the purchase price is ₹60 lakhs and the seller is an Indian resident, you should deduct TDS @ 20% of ₹60 lakhs.
Assuming the seller did not provide the PAN, you will need to deduct ₹12 lakhs as TDS for the said property, and pay it to the Income Tax Dept.
1% TDS: However, if the seller provides PAN, you are entitled to deduct only 1% of the purchase price as TDS. And pay the same to the Income Tax Dept.
See the table below for TDS rates on Indian seller of property.
|Particulars||BTDS % on Property Purchase Price|
|Below ₹50 lakhs||Above ₹50 lakhs|
|PAN provided||Nil TDS||1%|
|PAN not provided||Nil TDS||20%|
Note: For any TDS rate, be it 20% or 1%, you are required to pay the TDS amount to the Income Tax Dept. within 30 days from the end of month of the registration.
After reading the procedure involving the TDS on sale of property by NRI, do you still think TDS calculation is complex?
Be it TDS deduction or TDS calculation, they are not as difficult as they are portrayed. They never were. If you are an NRI seller, discuss with your buyer regarding the TDS beforehand. And get the appropriate TDS certificate from the Income Tax Officer in time.
Because, it is much easier to do it right the first time than to make mistakes and try to fix them.
If you have any more specific questions, feel free to ask me in the comments section. If you find this article helpful, please share it to your other NRI friends and family.