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How NRI Buyers Can Confirm Sellers NRI Status

CA Arun Tiwari , Last updated: 11 June 2024  
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Introduction

In the realm of property transactions, especially those concerning NRIs (Non-Resident Indians), there's often a cloud of uncertainty regarding an individual's residential status. This uncertainty can pose challenges for both buyers and sellers. This article explains how to identify a seller's NRI status, the risks of misrepresentation, and offers guidance for navigating these complexities smoothly.

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The Seller's Perspective

From the seller's perspective, dealing with property transactions in India can be a complicated affair, especially when they are Non-Resident Indians (NRIs). One of the significant challenges they face is the imposition of a high Tax Deducted at Source (TDS) rate of 23% on the total sale value. This significant financial burden may tempt some NRIs to misrepresent their residential status to avoid this heavy TDS, but such shortcuts can lead to serious consequences.

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The Risks of Misrepresentation

How NRI Buyers Can Confirm Sellers NRI Status

Attempting to avoid TDS by misrepresenting NRI status may seem like a quick fix, but it's full of risk. The Income Tax Department has the authority to open a case against NRIs for up to 16 years after the transaction. Imagine getting a notice a decade later without any evidence to prove your innocence. The financial and legal implications can be devastating.

Buyer Beware

Buyers, too, have their share of responsibilities in property transactions involving NRIs. It's crucial that they ensure proper TDS deduction and compliance. Failure to do so can result in penalties and late fees accumulating at a rate of ₹300 per day. Receiving a notice years after the transaction with heavy penalties can be overwhelming.

Due Diligence and Legal Research

As a responsible buyer, you are expected to conduct due diligence regarding the property you plan to purchase. This should involve confirming the seller's residential status. Ignorance or deceit are not valid excuses. Making a legally sound decision is essential for a successful property transaction.

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Spotting the NRI Seller

If you suspect the seller is an NRI, you can start by asking around the local community. In many cases, people are aware of their neighbors' or acquaintances' overseas residence. For example, parents frequently share their children's international living status. These inquiries can provide valuable information for making an informed decision.

Protective Measures for Buyers

Buyers can take several protective measures to mitigate risks associated with a seller's misrepresentation.

Indemnity Bond

Request an indemnity bond from the seller. This document holds the seller accountable for potential losses or legal actions stemming from their deceit. It acts as a protective shield, assuring buyers that they won't bear the brunt of any legal consequences resulting from the seller's actions.

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Notarized Statement

Another protective measure for buyers is asking the seller to provide a notarized statement affirming their residential status as a resident. If the seller refuses, this should raise concerns about their honesty. Lying under oath is a criminal offense and should be taken seriously. A notarized statement adds legal responsibility and maintains transparency in the transaction.

The Buyer's Responsibility for Compliance

Buyers must grasp that compliance with TDS provisions falls on their shoulders. They should ensure the correct TDS is deducted and promptly deposited with the Income Tax Department. Adhering to these compliance requirements is crucial for a hassle-free property transaction, safeguarding buyers' interests and ensuring they stay within the law.

Patience Pays Off

For both sellers and buyers, patience can be a valuable asset in navigating the complexities of NRI property transactions. Buyers should assure sellers of their desire to cooperate in achieving full compliance. Most NRIs understand the importance of obeying the law and will comply. This collaborative approach benefits all parties, leading to a smoother and legally sound transaction.

 

The Bottom Line

In the intricate world of property transactions with NRIs, honesty and compliance are the foundations of a seamless and legally sound deal. By understanding the risks of misrepresentation and taking steps to ensure transparency and compliance, buyers and sellers can confidently navigate this journey. Successful property transactions depend on awareness, integrity, and patience.

Conclusion

NRI property transactions come with their own set of complexities, especially concerning the seller's residential status and TDS implications. It's crucial for both buyers and sellers to navigate these intricacies with care and diligence. Misrepresentation can lead to severe consequences, making it essential for all parties involved to act honestly and transparently. By following due diligence, requesting protective measures like indemnity bonds and notarized statements, and ensuring TDS compliance, a seamless and legally sound property transaction can be achieved. Patience, cooperation, and adherence to the law are the keys to a successful NRI property transaction.

 

The author is a Chartered Accountant and former EY employee who serves as the Chief Consultant of the NRI Desk and Influencer Desk at AKT Associates. He specializes in offering consultancy services tailored for NRIs and is dedicated to creating educational content to raise awareness within the NRI community.

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CA Arun Tiwari
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