Tax Procedures & Implications for NRIs Selling Immovable Property in India

Selling immovable property in India as a Non-Resident Indian (NRI) to a resident can involve various tax procedures and implications. Even if the capital gain is low or nil, Indian residents are required to deduct tax at a rate of 20% for Long-Term Capital Gains (LTCG) or at the slab rate for Short-Term Capital Gains (STCG), along with applicable surcharges and education cess, under section 195 of the Income Tax Act.

This article deals with a situation where an NRI sells his immovable property in India to a Resident in India. Under such circumstances, even if Capital Gain is low or NIL, still the Indian Resident is required to deduct the Tax @ 20% in case of LTCG or Slab Rate in case of STCG (plus applicable Surcharge and Education Cess) as provided under section 195 of Income Tax Act.

This article explores the steps to reduce or eliminate this Tax Deducted at Source (TDS) burden by obtaining a Nil or Lower Deduction of Tax Certificate from the Assessing Officer in the Income Tax Department.

Tax Procedures for NRI Property Sale:

1. Application for Certificate: To reduce the TDS burden, an NRI must apply for a Nil or Lower Deduction of Tax Certificate. This application is made under Form No. 13 through the traces login portal. The application should include the Tax Deduction and Collection Account Number (TAN) of the buyer(s) along with the payment amount each buyer is set to receive.
2. Details Required in Form-13: The Form-13 application should contain essential details, including:
   • Estimated income computation for which the Financial Year (F.Y) Certificate is sought.
   • Details of income claimed to be exempt and not included in the total income.
   • Computation of Estimated Income for any of the four previous years preceding the previous year if a return has not been filed.
   • Assessment Orders for the last four assessment years.
   • Return of Income filed in Paper Form for any of the four previous years.
3. Additional Queries: The Assessing Officer may raise queries related to the NRI’s status, Form 26AS for previous years, Agreement to Sell, Sale Deed, and proof of various costs forming part of the cost of acquisition for the NRI. It is essential to provide satisfactory responses to these queries.
4. Issuance of Certificate: If the Assessing Officer is satisfied with the provided information, they will issue a Nil or Lower Deduction Certificate to the NRI. Once this certificate is granted, every person responsible for making payments to the certificate holder must pay the amount without deducting tax or deducting tax at the lower rates mentioned in the certificate.

Conclusion:

Selling immovable property in India as an NRI to a resident involves complying with tax procedures and implications. Section 195 of the Income Tax Act mandates the deduction of tax at source by Indian residents, even if the capital gain is low or nil. However, NRI sellers can reduce or eliminate this TDS burden by obtaining a Nil or Lower Deduction of Tax Certificate. This certificate is obtained by making an application under Form No. 13 through the traces login portal, providing essential details, and addressing queries raised by the Assessing Officer.

It is crucial for NRI sellers to understand these procedures and stay up-to-date with the latest regulations, as of September 11, 2023, to optimize their tax liabilities when selling property in India. Properly navigating these tax implications can lead to significant savings and a smoother property sale process.

 Pls Note: This article contains update info till the date of publish of this article i.e. 11^th Sept 2023.