Tax withholding (TDS) may ensure transfer tax compliance during a property transfer. Non-resident Indians (NRIs) should be aware of the unique tax consequences associated with the selling of Indian real estate. NRIs must know these laws and regulations to satisfy their tax duties and avoid fines or legal complications. This piece will examine the TDS on the sale of property by NRI and other tax consequences for nonresident Indians who sell property in India.
Does An NRI Have to Pay Tax When Selling an Indian Property?
The Indian government uses a technique called TDS (Tax Deducted at Source) to collect taxes on property sales made by non-resident Indians. The purchaser must withhold TDS from the sales price and remit the funds to the relevant income tax authority by the due date.
How Does an NRI In India Owe Tax on Profits Made from The Sale of Property?
Foreign nationals must pay capital gain on the sale of property by NRI. According to Section 195 of the Income Tax Act 1961, the purchasing party must withhold TDS from the sale price of an NRI’s Indian property. In contrast to Section 194IA, the tax deduction rate here is not capped at 1%. Capital gains are subject to the following tax regulations in India for Non-Resident Indians (NRIs):
Taxes on Gains from the Sale of Short-Term Assets:
A non-resident Indian (NRI) will incur a short-term capital gain if they sell or transfer any capital asset (including stocks, securities, or immovable property) they have held for less than 24 months.
Gains on investments held for less than a year are subject to taxation at the highest marginal rate for nonresident people.
Long-term Capital Gains (LTCG) Taxation
- A long-term capital gain is defined as any profit made by a non-resident people (NRI) on the sale or transfer of an asset that the NRI has owned for at least 24 months.
- If your long-term capital gains from investing in listed assets (such as equities and equity-oriented mutual funds) reach INR 1 lakh in a financial year, you would be subject to taxation at an NRI property sale TDS rate of 10% without indexation advantage.
- Long-term capital gains tax is usually applied at a rate of 20% with an indexation advantage for immovable property and other assets. Rates and regulations may also change based on the underlying asset.
Indexation Benefit
Capital gains taxes may be kept to a minimum by taking advantage of the indexation benefit, which involves recalculating the original purchase price of an item after accounting for inflation
The Cost Inflation Index (CII) established by the Income Tax Department determines the indexed purchase cost for long-term capital gains on assets other than listed securities.
Capital Gains Exemptions and Deductions
Non-resident Indians may be eligible for certain capital gains exemptions and deductions, such as the Exemption under Section 54, which gives relief when selling a primary residence and reinvesting the proceeds in another property.
Investing the profits from the sale of any asset other than a primary residence into a primary residence qualifies for the capital gains tax exemption provided by Section 54F.
Investing in certain bonds within the time-frame indicated by Section 54EC qualifies for the capital gains tax deduction.
Tax Deducted at Source
If a non-resident Indian (NRI) sells immovable property in India, the purchasing entity is obligated to withhold tax at the source (TDS) on the sale profits. Tax deducted at source (TDS) rates for nonresident people might change based on the value of the sold property.
Income Tax Rules for NRI on TDS Deductible
You, as a Non-Resident Indian (NRI), must comply with specialised TDS (Tax Deducted at Source) income tax regulations. Some essential details about TDS exemptions for NRIs are as follows:
Revenue Sharing
Tax deducted at source (TDS) applies to several forms of income produced in India by NRIs.
- TDS rates might change according to the kind of income and the NRI sale of property TDS structure in place.
- A deductor needs a Nonresident people’s Permanent Account Number (PAN) for tax withholding purposes.
Tax Deducted from Interest
TDS is withheld at a flat rate of 30% (plus appropriate surcharge and education cess) from the earnings of interest-bearing instruments held by non-resident Indians. NRIs may submit proof of residency (in the form of a Tax Residency Certificate, or TRC) to qualify for a reduced TDS rate under the Double Taxation Avoidance Agreement (DTAA) between India and their place of residence.
Capital Gains Tax
- Capital gains realised by a non-resident Indian (NRI) from the sale of Indian real estate, stocks, or other capital assets are taxable and subject to TDS.
- Capital gains TDS on the sale of property by NRI are subject to change based on asset type and holding duration. Any TDS overpaid by nonresident people may be refunded by submitting an income tax return.
Exclusions from TDS
- NRIs may apply for reduced TDS rates or claim exemptions by getting a certified accountant’s Certificate of Reduced Deduction or No Deduction. This certificate is necessary for certain transactions and may assist Non-Resident Indians (NRIs) in saving money on their tax obligations.
- The TDS (Tax Deductible at Source) rate in India is 20%, and the buyer must pay this tax when purchasing a property from an NRI. A 30% TDS is due on the sale price if the property is sold in less than two years.
Form 13 Applications May Be Used to Lower Your TDS Liability.
To get a Certificate for Nil/ Lower Deduction of TDS, a non-resident Indian (NRI) must submit a request in Form 13 to the Income Tax Department. Most nonresident people (NRIs) choose this certificate because it significantly lowers their tax withholding obligation (TDS). However, due to the complexity of this application, most NRIs decide to retain a Chartered Accountant to handle its submission on their behalf. If you need help in property related legal services, you may book a free consultation with tax and property legal experts at NoBroker.in.