If the NRI is purchasing properties and the consideration to the resident seller is above Rs. 50 lakhs, then TDS has to be deducted by the NRI as per Section 194 IA of the income tax Act.
Please note that the NRI does not require TAN number. He or she has to use the online form -26QB and enter details of property and instalment and pay within 30 days of end of month in which the payment was made. Then, certificate under Form 16B has to be generated.
Note one more thing, I mentioned that the seller has to be resident. If the seller is also an NRI like the buyer, then my view is that Section 195 will still apply and TDS has to be deducted on the entire purchase value. This can be avoided if the capital gains calculation is done and submitted to the assessing officer for a lower Tax deduction certificate.
Note one more thing, I mentioned that the seller has to be resident. If the seller is also an NRI like the buyer, then my view is that Section 195 will still apply and TDS has to be deducted on the entire purchase value. This can be avoided if the capital gains calculation is done and submitted to the assessing officer for a lower Tax deduction certificate.
NRIs are liable to pay tax on Capital gains (Short-term or Long-term) arising due to the sale of property situated in India.
- Long-term capital gain (LTCG) arises when the property is held for more than 2 years before sale. They are taxed at 20% under the Income Tax Act.
- On the other hand, Short term Capital gain (STCG) arises in case the property is held for 2 years or less and they are taxed at the applicable income tax slab rates for the NRI based on their total taxable income in India.
On this, the buyer is liable to deduct TDS at the prescribed rates before transferring the amount to the NRI seller.
- When the property is sold after holding it for more than 2 years i.e. the property is a Long Term Capital Asset, TDS is applicable at 20%.
- If sold before 2 years or on completion of 2 years, i.e. the property is a Short Term Capital Asset, TDS at 30% shall be required to be deducted.
[Note: The above-said tax implications are also a to NRIs who have inherited house property. In such cases, it becomes important to consider the original owner’s purchase date for calculating whether it’s a long-term or a short-term capital gain and the cost of the property to the previous owner.]