TDS on Sale of Properties by NRI in 2022

Applicability of TDS on Sale of Property by NRI

TDS must be deducted whenever a property is purchased or sold. When paying the selling, the buyer will deduct a certain amount (officially known as TDS) and pay the remaining amount to the seller. The buyer would then be required to deposit the amount deducted with the Income Tax Department.

The amount to be deducted would depend on the residential status of the seller. If the seller is a resident Indian, TDS will be taken at 1% of the sale price, however, if the seller is a non-resident Indian, TDS will be deducted at a rate determined by the amount of money received by the seller.

The buyer’s residential status would not be taken into account, and only the seller’s residential status would be taken into account when calculating the amount of TDS to be deducted.

Amount on which the TDS is required to be deducted

TDS is required to be deducted on NRI property sales under Section 195, and it is ideally required to be deducted on Capital Gains. This calculation of capital gains, on the other hand, cannot be done by the Seller and must be done by the Income Tax Officer.

The seller must submit a Form 13 application to the IRS, requesting that his capital gains be computed. The procedure for filing this form is a little complicated, so the seller should hire a chartered accountant to help them file an application with the IRS.

Depending on the capital gains arising from the sale of property, the Income Tax Department will compute the seller’s capital gains and issue a certificate for Nil/Lower TDS deduction.

The seller must provide this certificate to the buyer, who will deduct TDS according to the rates listed on the income tax certificate.

If the seller does not get this certificate from the IRS, the TDS should be deducted from the total sale price rather than the capital gains. As a result, obtaining this certificate from the Income Tax Officer is critical for the vendor.

It is recommended that the TDS deduction details be included in the Property Sale Agreement. It should also be highlighted that the TDS Deduction is not the duty of the Property Registrar. Even if the TDS is not deducted or is deducted incorrectly, the Registrar will record the Sale Agreement.

If the TDS is incorrectly deducted or not deducted at all, the Income Tax Department will pursue the buyer of the property to collect the TDS. The Income Tax Department will recover the TDS from the buyer if the buyer forgot to deduct it or deducted too little.

TDS Payment, TDS Return and TAN No.

When buying a property from an NRI, there is a slew of regulations to adhere to. To begin, the buyer must obtain a TAN number in order to deduct TDS. If the property is purchased from a Resident Indian, a TAN number is not necessary, but it is required if the property is purchased from a Non-Resident Indian.

A TAN number is different from a PAN number since it stands for Tax Deduction and Collection Account Number. The buyer, not the seller, is obliged to have this TAN number. If the buyer does not have a TAN number, he should register for one before TDS is deducted. It’s worth noting that if there are two buyers, each of them will be required to apply for a TAN number.

The buyer must deposit the TDS with the Income Tax Department within 7 days of the end of the month in which the TDS was deducted. For example, if TDS is deducted in June, it must be remitted to the Income Tax Department on or before July 7th.

This TDS must be deposited with Challan No./ ITNS 281 and is available for deposit both online and at various bank branches.

Following the TDS deposit, the buyer must submit a TDS Return. This TDS Return must be submitted in Form 27Q, and it must be submitted separately for each quarter in which TDS has been deducted. This TDS Return must be deposited within 31 days of the end of the quarter from which the TDS was deducted.

The buyer must additionally provide Form 16A to the seller of the property after depositing TDS and filing TDS Return.