When a person purchases immovable property from a Non-Resident Indian (NRI) in India, they are liable to deduct Tax Deducted at Source (TDS) on the entire sale consideration (on every payment made to the seller), as provided under Section 195 of the Indian Income Tax Act, 1961. It is crucial to understand the Tax Residency status of the seller before proceeding with the transaction since the TDS provisions differ between Resident Indians and NRIs.
Who is an NRI for Income Tax Purposes?
An NRI for Income Tax purposes is defined as a person who meets any of the following conditions:
- Less than 182 days of stay in India during the Financial Year (FY), or
- Stayed less than 60 days in India during the FY and less than 365 days in the last 4 FYs (Both conditions must be fulfilled).
- An Indian citizen who leaves India for employment or as a member of the crew of an Indian ship, and has resided in India for less than 182 days in the FY and less than 365 days in the last 4 FYs (Both conditions must be fulfilled).
- An Indian citizen or Person of Indian Origin (POI) visiting India, having a total Indian income of less than Rs. 15 lakh (other than income from foreign sources), who has resided in India for less than 182 days in that FY and less than 365 days in the immediately preceding 4 FYs.
- An Indian citizen or POI visiting India, having a total Indian income of more than Rs. 15 lakh (other than income from foreign sources), who has resided in India for less than 120 days in that FY and less than 365 days in the immediately preceding 4 FYs.
It is advisable for the buyer to verify the Tax Residency status of the seller, as TDS provisions vary for Resident Indian Sellers and NRI Sellers.
TDS Rates on Property Sale
1. Resident Indian Seller:
- The TDS rate for Resident Indian Sellers is 1% on the sale consideration above Rs. 50 lakh.
2. NRI Seller:
- The minimum limit of Rs. 50 lakh does not apply for NRI Sellers. TDS is applicable on all property transactions, regardless of the sale consideration, under Section 195 of the Income Tax Act.
TDS Rates for Sale of Property by NRIs (Before 23.07.2024)
The following table outlines the TDS rates applicable for the sale of immovable properties held by NRIs before 23.07.2024:
| Sale Consideration | TDS Rate | Surcharge | Total Tax | Health & Education Cess | Effective TDS Rate |
|---|---|---|---|---|---|
| Less than Rs. 50 Lakhs | 20% | Nil | 20% | 4% of Total Tax | 20.8% |
| Rs. 50 Lakhs to Rs. 1 Crore | 20% | 10% of TDS | 22% | 4% of Total Tax | 22.88% |
| Rs. 1 Crore to Rs. 2 Crores | 20% | 15% of TDS | 23% | 4% of Total Tax | 23.92% |
| Rs. 2 Crore to Rs. 5 Crores | 20% | 15% of TDS | 23% | 4% of Total Tax | 23.92% |
| Above Rs. 5 Crores | 20% | 15% of TDS | 23% | 4% of Total Tax | 23.92% |
Example:
If an NRI holds the property for more than 2 years and is selling it for Rs. 1.5 crore before 23.07.2024, the TDS calculation would be as follows:
- Sale Consideration: Rs. 1,50,00,000
- TDS @ 20%: Rs. 30,00,000
- Surcharge @ 15%: Rs. 4,50,000
- Total Tax: Rs. 34,50,000
- Health & Education Cess (4%): Rs. 1,38,000
- Total TDS: Rs. 35,88,000
Thus, the seller will receive only Rs. 1,14,12,000 out of the sale price of Rs. 1.5 crore, with the balance of Rs. 35,88,000 being deducted by the buyer and deposited with the Income Tax Department as TDS.
Revised TDS Rates for Sale of Property by NRIs (After 23.07.2024)
The Finance Bill 2024 has revised the TDS rates for the sale of property by NRIs, effective 23.07.2024. The revised TDS rates are as follows:
| Sale Consideration | TDS Rate | Surcharge | Total Tax | Health & Education Cess | Effective TDS Rate |
|---|---|---|---|---|---|
| Less than Rs. 50 Lakhs | 12.5% | Nil | 12.5% | 4% of Total Tax | 13% |
| Rs. 50 Lakhs to Rs. 1 Crore | 12.5% | 10% of TDS | 13.75% | 4% of Total Tax | 14.3% |
| Rs. 1 Crore to Rs. 2 Crores | 12.5% | 15% of TDS | 14.375% | 4% of Total Tax | 14.95% |
| Rs. 2 Crore to Rs. 5 Crores | 12.5% | 15% of TDS | 14.375% | 4% of Total Tax | 14.95% |
| Above Rs. 5 Crores | 12.5% | 15% of TDS | 14.375% | 4% of Total Tax | 14.95% |
Example:
If an NRI holds the property for more than 2 years and sells it for Rs. 1.5 crore on or after 23.07.2024, the TDS calculation would be as follows:
- Sale Consideration: Rs. 1,50,00,000
- TDS @ 12.5%: Rs. 18,75,000
- Surcharge @ 15%: Rs. 2,81,250
- Total Tax: Rs. 21,56,250
- Health & Education Cess (4%): Rs. 86,250
- Total TDS: Rs. 22,42,500
Thus, the seller will receive only Rs. 1,27,57,500 out of the sale price of Rs. 1.5 crore, with the balance of Rs. 22,42,500 being deducted by the buyer and deposited with the Income Tax Department as TDS.
Obligations of the Buyer
Deduction and Deposit of TDS: The buyer is obligated to deduct TDS at the prescribed rates (either the standard rates or the lower/nil deduction certificate issued by the Income Tax Department) on every payment made to the seller.
Application for TAN: The buyer must apply for a Tax Deduction Account Number (TAN). If the property is jointly purchased, all parties involved in the investment are required to obtain a TAN.
Deposit of TDS: The TDS must be deposited with the Income Tax Department via e-challan by the 7th day of the next month after payment to the seller.
Filing TDS Return: After depositing TDS, the buyer must file the TDS return in the following quarter and download Form 16A to provide to the seller.
Penalties for Non-Compliance: Failure to deduct TDS at the prescribed rate can result in penalties under Section 271C of the Income Tax Act. The buyer will be liable for the penalty equivalent to the TDS amount not deducted, along with interest under Section 201.
Advice to Buyers and Sellers
For Buyers: It is essential to verify the tax residency status of the seller before entering into a property transaction. If the seller is an NRI, TDS must be deducted at the prescribed rates. In case the seller provides a Nil/Lower Deduction Certificate, follow the rates mentioned in the certificate.
For Sellers: Non-compliance with TDS deduction rules may result in difficulties repatriating the sale proceeds abroad. Additionally, misrepresentation of tax residency status can attract penalties and prosecution by the Income Tax Department.
