If a Non Resident Indian (NRI) and A Citizen of Indian Origin (CIO) sells their property located in India after retaining it at least for three years, then they has to pay long-term capital gain tax at 22.88%* U/s 195 of Income Tax Act 1961 on the capital gain or in simple term on profit made on the property. However, there are deductions available for investment in property or Bonds. However, as per Section 197, every buyer who purchases the property from such NRI or CIO need to deduct a TDS @ 22.88% on gross sales proceed. In such a situation first paying TDS @ 22.88% and then claiming the refund after filing an IT Return, which may take months if not years, is definitely not a wise decision.
Instead, NRI sellers can apply for a lower or No TDS Deduction Certificate by applying form 13 online from Income tax department in case their actual tax rate for income earned is lower than 22.88%, This will saves them from hassles as well as avoid locking of 22.88% of sales proceeds of Property for months which can be avoided.
The best idea to apply for Low or NIL TDS certificate U/s 197 of Income Tax Act as soon as you find a prospective buyer and properly sale value is fixed.
Apart from that here is the twist An NRI can apply for lower tax deduction. i.e. for deducing his TDS only on capital gains. The TDS (U/s 195) will be calculated only on capital gain rather than on complete sale value, which in fact can be 1% or 2 % and in some case even No TDS may be required if there is no actual gain as per calculations.
Bonus, you can save this TDS as well by reinvesting the capital gain amount in another property within two years or investing in tax-free bonds (within six months). And then apply for a lower TDS certificate under section 195 of income tax. To apply you can ask a CA to file for 15CB &15 CB and can remit the money to your country or keep the money in your NRO account, with a maximum limit of $1 million.
Tags tds Income Tax