Tax Implications for NRIs Selling Property In India

1) TDS on Property Sale Buyers are required to obtain a Tax Deduction Account Number (TAN) to deduct and deposit TDS.

2) Due date to deduct TDS will be 7th of subsequent month from the date of payment/registration which is earlier. for the month of march due date will be 30th April.

3) TDS will be deducted under section 195 there is no minimum threshold for TDS deduction, meaning tax must be deducted on any payment made to a Non-Resident Indian (NRI) or foreign entity if it is taxable in India. The obligation to deduct TDS arises at the time of payment or when the amount is credited to the payee’s account, whichever is earlier.

4) Rate of TDS will be 20 % and cess in case of LTCG and 30 % plus cess for STCG

5) The buyer is required to file deduction and payment details in Form 27Q. TDS Return has to be filed on quarterly basis due date will be 31st of following month to quarter for Q4 due date will be 31st May. Upon successful filing of the TDS return, the buyer can obtain Form 16A, which is then provided to the NRI seller.

6) The NRI can reduce TDS by filing an application for a Lower Deduction in Form 13 if there is no Capital gain or if capital gain is lower than TDS to be deducted with the Income Tax Officer. Benefit of lower rate will not be applicable to any sum received prior to date of application to Income Tax officer.

7) Filing an ITR is necessary for NRIs for the year in which the property was sold if the total income (including the capital gains from the property sale) exceeds the basic exemption limit as per the applicable income tax slab rates.

8) As per the Budget 2024 updates, there have been significant changes to the taxation of gains from property sales for NRIs

• a) The long-term capital gains (LTCG) tax rate on the sale of immovable property has been reduced from 20% to 12.5%.
• b) The benefit of indexation, which allowed for adjusting the purchase price for inflation, has been withdrawn. This means that the actual gains realized upon sale will be fully taxable.
  

9) An NRI selling property in India must submit Form 15CA and Form 15CB to the authorized dealer bank for repatriating the sale proceeds. While Form 15CB requires certification from a Chartered Accountant.

10) NRI can save taxes as per income tax rules for NRI while selling a property under Section 54 (sale of a residential property of the NRI if the proceeds are reinvested in another residential property), Section 54EC(exemption from long-term capital gains tax if the gains are invested in specified bonds), and Section 54F(exemption from long-term capital gains tax on the sale of any asset other than a residential property if the proceeds are invested in a residential property).

11) When a buyer neglects to deduct TDS at the designated rates, they become liable for penalties equal to the TDS amount not deducted. Moreover, interest accrues on the defaulted sum. Non-deduction of TDS also impedes the seller’s ability to repatriate the sale proceeds to their foreign bank account or NRE (Non-Resident External) account. Additionally, if the transaction comes under the scrutiny of the Income Tax Department and it is revealed that TDS was not deducted appropriately, the seller may face prosecution for misrepresenting their tax residency status.

12) Buyers must ensure the seller’s tax residency status before proceeding with a property transaction. If the seller is a non-resident, TDS must be deducted at the prescribed rates on each payment made to the seller. However, if the seller provides a Nil/Lower Deduction Certificate (Form 13), the TDS should be deducted at the rate specified in the certificate.

13) POA will be required separately for purpose of bank if NRI is having running loan for the purpose of loan compliance on his behalf and separate for the purpose of registration compliance if he is not coming to India at time of registration.