News: NRI should take advantage of lower TDS while selling / buying property in India

NRIs should take advantage of lower TDS – Both who wish to make investments in India as well as for those who want to sell investments made some time ago. According to a survey, Indian metro cities are seeing a good 20 to 30% year-on-year increase in property sales from NRIs in the past 4 to 6 months. This is a constant rise in property prices in the metro cities.

If a resident Indian or a Non-Resident Indian (NRI) sells a property in India after holding it for a period of more than three years, then long term capital gains tax of 22.66% will be applicable. While the taxation is same for both the parties, there is a difference in the way Tax-Deducted at Source (TDS) is calculated. An NRI selling property in India has the right to apply to the assessing officer for certificate of non-deduction or lower tax deduction. That is for deducting his TDS only on the capital gains.

In other words, the TDS including surcharge of 22.66% will be calculated only on the capital gains and not on the sale price which will not erode his profits, if any. If this gets approved by the Income Tax office, then the buyer of the NRI’s property can make payment to him in full (i.e. sale price), whereas a certificate of (TDS on capital gains) will be issued separately to the NRI. This procedure takes about 2 to 4 weeks, and will require the NRI to submit some key documents like his sale-agreement, PAN, income tax returns, bank statements and so on.

First, deduct the expenses incurred by NRI from the sale price, which will give you the net selling price of the property. Expenses incurred can include legal fees, transfer fees, travelling fees etc. Then, the difference between this and the indexed cost of purchase will be your capital gains. One way of getting this waiver is if the NRI re-invests these capital gains made from the sale of property in another property (within two years) or in tax-free bonds (within six months). In such cases, the NRI will be exempt from tax in India, and no TDS will be deducted either. For this, they will have to apply for a tax-exemption certificate under Section 195 of income tax act.

Whereas, if the NRI decides to sell that property within three years, then he will have to pay short-term capital gains tax according to the tax-bracket he falls under along with a fixed rate of TDS respectively. As an NRI, he can ask his CA to file form 15 CA & CB electronically which will state that the NRI has no tax-liability and can remit this money back to his country now. If he doesn’t wish to repatriate the money, he can keep it in his Indian bank’s NRO account. However, according to RBI guidelines repatriation of such funds per financial year should not exceed $1 million.