Are you aware that TDS is avoidable by NRI on property sell (NRI tax on property sale)?

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 applicable 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.]

Now arises the real question- How can we save the tax on capital gains and TDS payments as an NRI?

1. The tax on Long-term Capital Gains can be saved by simply claiming exemptions under Section 54, Section 54EC, or Section 54F by fulfilling the requirements mentioned in the same.
2. On the other hand, to seek relief from the withholding tax rates (TDS), the seller has to obtain the NIL/lower TDS certificate from the Income Tax Department. On obtaining the same, the buyer will have to deduct TDS at the lower rate prescribed in the NIL/lower TDS certificate.
3. Eligibility to obtain this certificate – The NRI seller can apply for a NIL/lower TDS certificate when the TDS is more than the seller’s tax liability.
4. When to obtain the certificate? – Such a certificate must be obtained before the execution of the sale agreement of the property.
5. Alternative to NIL/lower TDS certificate- If the NRI does not choose to obtain the NIL/lower TDS certificate, they can also claim a refund on the TDS deducted when the TDS is more than the tax liability. The only drawback is that it is a time-consuming process.
6. Procedure- To apply for a NIL/lower TDS certificate, an online application must be submitted by the NRI using Form 13 and the same should be verified through DSC(Digital Signature Certificate). The assessing officer will further process the application after the verification is completed.
7. Where to use the certificate?- TDS is deducted on the incomes earned by NRIs in India (including rent, interest, and dividends). Thus, anyone making payments to NRIs must deduct the applicable TDS before crediting the income or when it accrues, depending on which comes first. In such cases, the NIL/lower TDS certificate can be used.