Tax should be deducted only on capital gains and not on the sale price, but buyer is liable to deduct TDS on entire sale proceeds. Hence advisable to NRI seller, get lower rate TDS certificate in advance!Payment only make to NRI even resident have special power of attorney.
TDS deduction varies as per the deal value.
NRI TDS CalculatorTDS RATE (%):
Biggest Mistakes as Buyer Should Avoid it
If you plan to buy a property from a non-resident Indian (NRI), you must know that the process is complicated. More stringent rules are imposed. As a buyer, you have been while making such deals. Here are some key points that you should be aware of when you go for home purchasing from NRI Owner.
1. Buyer liable to pay Higher rate TDS: While purchasing a property from Non-Resident Indian, the rules are different.
In such cases, tax has to be deducted before making the payment to the seller which is commonly referred to as TDS (tax deducted at source). It is section 195 of Income tax act, 1961 which deals with the case of tax deducted at source on payment to non-resident Indians.
The seller must have Permanent Account Number (PAN) to execute the transaction. The buyer must have a Tax Deduction and Collection Account Number (TAN), without which tax (TDS that you as a buyer need to pay) will not be able to be deducted. If you do not have it yet (for both parties), then you must apply for it immediately. If you are planning to buy a NRI property as a co-owner, then your spouse must also have TAN. The same goes with the seller in case there is more than one seller.
All these deductions in on the capital gains that the seller makes, although you should deduct the amount on the total deal value unless the seller goes forward to present a certificate establishing lower tax liability. This is issued by an income tax officer to help and proceed with the standard practice. The TDS must be deposited within seven days of the month of transaction. Then file a TDS return in form 27Q and issue Form 16A to the seller. Delays levy ₹ 200/- per day late fee for late filing return and interest on delayed payment TDS.
Ensure that you deposit the amount in an NRE or an NRO or FCNR account only of the seller.
Illustration: - I will try to keep this illustration very simple as there is a common perception that this subject matter is complex!
This post is dedicated to my NRI friends who would like to know about their TDS liability at the time of sale of Property in India.
Mr. NRI who leave in India having a residential accommodation in Gurgaon!
Now he want to sell his Gurgaon flat which is long back investment property at a sale consideration INR 2.50 crore and want to invest in another Flat in Bangalore!
Therefore 1st task is to calculate long term capital gain of Mr. NRI. Indexed cost of acquisition of property is approx INR 1.50 Crore and he is selling it for 2.5 Cr. Long Term Capital Gain from property sale is approx 1 Crore and corresponding Long Term Capital Gain Tax at 26% is 26 Lakh.
If in case of Mr. NRI, buyer deduct TDS at 26% u/s 195 then TDS will be deducted on sale consideration value i.e. 2.5 Cr. TDS u/s 195 will be approx INR 65 Lakh against Mr NRI Long Term Capital Gain Tax liability of 26 Lakh. In short, u/s 195 excess TDS to the extent of INR 44 lakh will be deducted assuming Mr NRI decided not to re-invest capital gains from property sale.
Further suppose he invested sale proceeds of Gurgaon flat into Bangalore Flat than excess TDS on account of LTCG of Gurgaon flat for which exemption u/s 54 is available in this context of excess TDS u/s 195 to the extent of INR 26 lakh deducted can be save by applying NIL/ Lower rate TDS Certificate from Income tax department.
Buyer Liable to deduct TDS on entire sale consideration. Now anomaly in this rule is that NRI is liable to pay Capital Gain Tax only on the Capital Gain arising out of sale of the property but unfortunately TDS is deducted on the total Sale Value of the property. Therefore in most of the cases there are no GAINS as such from the sale of property and actually NRI incur LOSS from the sale of the property if TDS refund is not claimed. As a result, NRI has to go through the process of claiming TDS refund from Income Tax Department.
2. Payment to SPOA Holder: It is always advisable that during the sale of NRI property the NRI seller should be physically present in India. Sometimes it is not possible due to unavoidable circumstances. In such cases, A Special Power of Attorney or SPOA is executed in favour of a person present in India. Typically SPOA holder is a relative of an NRI Seller. A power of attorney is called Special Power of attorney. if it is executed for a particular purpose as the sale of the property. A General Power of Attorney is multi-purpose like authorization to carry out any financial transaction in India. POA, GPOA and SPOA are used interchangeably. For NRI property, any reference to POA from my end precisely means SPOA.
In the case of NRI property, it is preferred that POA should be SPOA i.e. executed only for the purpose of sale of NRI property. The SPOA should specify property details and also the complete details of SPOA holder i.e. relation, PAN No, etc. Now in many cases, i observed that SPOA holder demands that payment should be made to the SPOA holder. There can be multiple possibilities like the intent of fraud, avoid TDS, family dispute, etc. Whatever be the reason a buyer should follow the natural law of any financial transaction. For an NRI property, the payment should be made only to the NRI Seller in his/her bank account. SPOA holder is only a representative of NRI seller to execute the NRI property transaction. SPOA holder is not the beneficiary of the property transaction.
In one of the case, SPOA holder told that as he is resident India, therefore, TDS applicable is 1%. It is not correct. As you are making payment to NRI seller, therefore, TDS is applicable according to residency status of a seller.
3. RBI Approval if seller from specific mentioned country: Every Non-Resident Indian [NRI] has a right to sell off his/her property in India to an Indian. But, an approval from the Reserve Bank of India [RBI] to sell a property to the NRIs living in the countries likes Afghanistan, Bhutan, China, Nepal, Pakistan, and Sri Lanka is mandatory. RBI’s approval is also essential for selling agricultural land. Hence, the buyer must ask for the document related to the selling approval from RBI to the NRI seller before finalizing the deal.
4. PAN, Citizenship and Residency Status: It is the complex web. I come across various interesting cases to avoid TDS. An NRI seller told my client that address on his PAN is Indian therefore TDS of 1% is applicable. Quite interesting. This option is suggested by the CA of an NRI seller. Let’s take an example, I shifted to self-occupied property six years back, and my address will remain Indian Address in PAN records. Meanwhile, i moved abroad and decided not to changes my address in PAN. My status change from resident Indian to NRI. After that i decide to sell my property and based on my PAN address, can i avoid TDS?. Can’t stop laughing.
Another case study was interesting. An Indian Citizen surrendered the citizenship and obtained citizenship of USA. Govt of India does not allow dual citizenship. If i opt for citizenship of some other country, then i need to surrender Indian Citizenship. Now this guy shifted back to India by his company. The residency status changed to Resident Indian after a stay of more than 182 days. He told my client that property cannot be classified as NRI property because of his residency status as Resident India. At the same time, he is governed by rules and regulations of FEMA. In short, a resident Indian, who is foreign national or PIO/OCI with non-Indian citizenship are treated at par with NRI’s. The TDS is applicable in all such cases.
In the event of doubt, a buyer can include relevant clauses in the sale deed to safeguard financial interest.
Certain things to consider before buying a property from an NRI i.e. the Non-Resident India. So, don’t fall for a wrong deal as we here list the essential things every home buyer should know before purchasing a property from an NRI:
Proceedures for making payment to NRI
- (1) Apply TAN No. of Buyer.
- (2) Deduct TDS
- (3) Pay TDS by 7 day of following month.
- (4) File for 27Q within due date of relevant quarter.
- (5) Issue form 16A.
- (6) Get CA Certificate in form 15CB, if NRI do not provide certificate u/s 197
The person making the payment will obtain a certificate from an accountant in form 15CB.
Then NRI has to upload the remittance details electronically to the department in form 15CA which should be filled using the information contained in form 15CB. He can then take a print-out of the filled form 15CA with system generated acknowledgement number.
He then has to sign the undertaking 15CA and the certificate 15CB will in turn be submitted in duplicate to Reserve Bank of India/authorized dealer who will forward each copy to Assessing Officer concerned.
In the case where a certificate has been obtained from the Assessing Officer regarding the rate at which tax is to be deducted, certificate from the accountant in form 15CB is not to be obtained.