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TDS on sale of Property

 

Selling a property in India involves a certain amount of tax compliance, and non-compliance can lead to penalties and legal issues. If you're an Indian resident or a non-resident Indian (NRI) selling a property in India, you need to be aware of the TDS (Tax Deducted at Source) rules that apply to you. In this article, we will discuss the TDS rules that apply to property sales by Indian residents and NRIs.
 
TDS on Property Sale by Indian Residents
 
When an Indian resident sells their property in India for more than Rs. 50 lakh, TDS is deducted at a rate of 1%. As per Section 194 IA of the Income Tax Act, 1961, the purchaser of the property is required to deduct the tax at the time of making the payment of the sale consideration. The tax amount should then be deposited in the government account through any authorized bank branch.
 
Here are a few important points to remember regarding TDS on property sales by Indian residents:
 
  • The purchaser is responsible for deducting the tax from the sale consideration.
  • The PAN (Permanent Account Number) of both the seller and the purchaser must be furnished in the online Form for furnishing information regarding the sale transaction.
  • There is no online mechanism for rectifying errors. If you need to rectify an error, you must contact the Income Tax Department.
  • The seller should verify that the taxes deducted by the purchaser have been deposited in the Form 26AS Annual Tax Statement.
TDS on Property Sale by NRIs
 
Non-resident Indians (NRIs) may hold foreign citizenship and do not reside in India. When they sell their property in India and a capital gain occurs, TDS is deducted by the buyer. The buyer of NRI property is required to deduct TDS, and if they fail to do so, they may become liable for taxes due on the property they purchased. TDS is deducted to ensure capital gain tax compliance.
 
Here are the TDS rates that apply to property sales by NRIs:
 
  • If an NRI is selling a property in India after holding it for more than 2 years, TDS is deducted at a rate of 20% plus Education Cess and Secondary and Higher Education Cess, which works out to a total of 20.6% on the gross transaction value if the sale price is less than Rs. 1 crore.
  • If 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.
  • If the holding period is less than 2 years, Short Term Capital Gain Tax will be applicable. For short-term capital gain, the TDS applicable is 33.99%.
Options to Lower or Waive TDS Deduction for NRIs
 
NRIs selling their property in India have the following options to lower or waive TDS deduction:
 
  • Nil Tax Deduction Certificate: In case of capital loss, NRIs can apply for a NIL Tax Deduction Certificate from the Income Tax Department to avoid the buyer from deducting TDS in compliance with the laws of India. This should be done before the final sale, so that the entire sale proceeds are received by the NRI seller.
  • Lower Tax Deduction Certificate: If the capital gain is less than the designated rate of TDS that buyers are obligated to deduct, NRI sellers can apply for a Lower Tax Deduction Certificate.
  • Tax Exemption 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, NRIs can apply for a Tax Exemption Certificate from the Income Tax Department under Section 195 of the Income Tax Act,

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