TDS on sale of Property by NRI

TDS on sale of Property by NRI

Problem

Non-residents who are selling immovable property which is situated in India have to pay tax on the Capital Gains. The tax that is payable on the gains depends on whether it is a short term or a long term capital gains. When a property is sold, after two years from the date it was owned – there is a long term capital gain. In case it is held for two years or less – there is a short term capital gain. When an NRI sells a property, the buyer is liable to deduct TDS @ 20% (plus applicable surcharge and cess) on the sale consideration. In case the property has been sold before two years(reduced from the date of purchase) a TDS of 30% (plus applicable surcharge and cess) shall apply to the sale consideration. Though the tax liability on the NRI seller is only on the net capital gains after deducting the cost of acquisition (indexation may be applicable in case of long term capital gain) and related expenses, the buyer will have to deduct tax on the wholesale consideration. As a result of this, a considerable amount of money will be withheld by the tax department which may later be claimed as a refund from the IT department.

Solution/Methodology

The seller may approach his Assessing Officer & request for lower or no tax deduction certificate. Assessing Officer shall compute the capital gains and tax arising as a result of the transaction. If the officer is satisfied that a lower tax deduction is required to cover the tax, he will issue a certificate for lower or no tax deduction. The seller shall give this certificate to the buyer, and thereby the buyer shall deduct tax only on the actual capital gain arising to the seller.

Outcome

The NRI seller will be able to considerably reduce the taxes that are unnecessarily withheld by the income tax department which in turn will improvise his cash flow position.

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