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TDS on sale of Property

TDS Property Sale by Indian Residents

When Indian residents sell their properties in India, TDS is deducted @ 1% if property sale is for more than Rupees 50 Lakh. Sec 194 IA of the Income Tax Act, 1961 states that for all transactions with effect from June 1, 2013, Tax @ 1% should be deducted by the purchaser of the property at the time of making payment of sale consideration. The tax so deducted should be deposited to the Government Account through any of the authorized bank branches.

Points to remember

Purchaser shall deduct tax from the sale consideration.

PAN of the seller, as well as Purchaser, should be mandatorily furnished in the online Form for furnishing information regarding the sale transaction.

There is no online mechanism for rectification of errors. For the purpose of rectification, you are required to contact the Income Tax Department.

The seller shall verify deposit of taxes deducted by the Purchaser in your Form 26AS Annual Tax Statement.

TDS Property Sale by Non-Residents

Non-Residents (NRI) on the other hand do not reside in India, many of them hold foreign citizenship. Once they sell their property in India and capital gains occur, As per rules TDS  is deducted by the buyer when the property is sold in India. If the buyer of NRI property fails to deduct TDS then they may become liable for taxes due on the property they purchased. TDS u/s 195 is deducted to ensure capital gain tax compliance.

If NRI is selling a property in India after holding it for more than 2 years, then TDS is to be deducted at the rate of 20% plus Education Cess and Secondary and Higher Education Cess which works out to the rate of 20.6% on gross transaction value if the sale price is less than 1 Crore. 

In case the sale price is above Rs.1 Crore, the rate of TDS works out to 22.66% including Surcharge, Education Cess and Secondary and Higher Education Cess.

In case holding period is less than 2 years then Short Term Capital Gain Tax will be applicable. For short-term capital gain, TDS applicable is be 33.99%

Options for lower or no TDS deduction for NRIs, when selling their property in India. In case there is a capital loss, then to avoid the buyer from deducting TDS in compliance with the laws of India, NRIs can apply for NIL Tax Deduction Certificate from the Income Tax Department. This should be done before the final sale to the entire sale proceeds are received by the NRI seller.

In a situation where there is a capital gain which is much less than the designated rate of TDS that buyers are obligated to deduct as TDS. NRI sellers can apply for Lower tax Deduction Certificate.

Long-term Capital Gain can be invested in either property or tax-exempt bonds to save long-term capital gain tax. In such cases, NRI can apply for Tax Exemption Certificate from Income Tax Department under section 195 of the income tax act, 1961

If an NRIs total income in India is less than basic exemption limit [currently 2.5 Lakh] then they can apply for TDS waiver with Income Tax officer applicable to their jurisdiction

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