CA Ruby Bansal
Table of Contents
Introduction
While selling a property, the buyer is required to deduct a certain percentage of the sale amount as TDS. TDS on property sale is a mechanism to ensure that taxes are deducted at the time of property transactions.
How to know whether the Seller is a Resident or a Non-Resident?
The conditions determining the residential status of an individual are:
Resident Individual
- Spends 182 days or more in India during the relevant financial year.
- Spends 60 days or more in India during the relevant financial year.
- Spends 365 days or more in India during the four years immediately preceding the relevant financial year.
Non-Resident Individual
- If the above conditions for residency are not met, the person is classified as a non-resident.
- Citizens of India or Persons of Indian Origin (PIOs)being outside India visiting India during the previous year.
- Citizens of India leaving India for employment outside India during the previous year.
- Citizens of India serving as members of the crew of an Indian ship.
Applicability of TDS on Property Sale for NRI
The applicability of TDS on property sale for Non-Resident Indians (NRIs) are:
| NRI Property Sale Duration | TDS Rates for NRI Property Sale |
| Property held for more than two years, it is considered a Long Term Capital Gain. | 20% |
| Property held for two years or less, it is considered a Short Term Capital Gain. | 30% |
Process for obtaining a NIL/lower deduction certificate
NRI sellers can apply for a NIL/lower deduction certificate from the Income Tax Department.
- Before Sale Agreement Execution: Obtain the certificate before executing the sale agreement to ensure the lower TDS rate is applied.
- Assessing Officer's Determination: The assessing officer calculates TDS based on capital gains before issuing the certificate.
- Refund Claim for Excess TDS: If TDS is more than the tax liability and no certificate is obtained, the seller can claim a refund.
Exemptions or deductions available to NRIs on capital gains
Section 54 - this exemption include:
- NRIs can invest the amount of capital gains, in a new property where that purchase can be made one year before or two years after the sale. But the new house property must be situated in India.
- Construction of the property is also allowed, but it must be completed within three years from the date of sale.
- Only one house property can be purchased or constructed from the capital gains to claim this exemption
- If the NRI is unable to invest the capital gains until the date of filing the return, they can deposit the gains in a PSU bank or other banks under the Capital Gains Account Scheme, 1988. This deposit can be claimed as an exemption from capital gains in the return, and no tax is payable on it.
Section 54 allows NRIs to claim an exemption on long-term capital gains from the sale of a house property by investing in a new property in India, subject to certain conditions and limitations.
Section 54F - Conditions for claiming the exemption :
- The new house property must be located in India.
- It should not be sold within three years of its purchase or construction.
- The NRI should not own more than one house property (besides the new house) at the time of transfer.
- Within two years of the transfer, the NRI should not purchase or construct any other residential house.
If the entire sale receipt is invested as per the specified conditions, the capital gains are fully exempt. If only a portion of the sale receipt is invested, the exemption is allowed proportionately. This exemption aims to encourage investment in residential properties and provides a tax benefit for NRIs on long-term capital gains.
Section 54EC - Conditions for claiming the exemption :
- Bonds issued by NHAI or REC are eligible for investment.
- The lock-in period for these bonds is 5 years.
- The NRI must invest within 6 months from the date of sale, and the investment should be made before the return filing date to claim the exemption.
- The maximum investment limit is Rs 50 lakhs in a financial year.
- The NRI should provide relevant proofs of investment to the buyer to ensure that TDS is not deducted on the capital gains.
- Excess TDS deducted can be claimed as a refund during the return filing process.
This provision allows NRIs to save tax on long-term capital gains by investing in specified bonds, contributing to the overall financial planning strategy.
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