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Procedural Aspects for Lower or NIL TDS rate on Sale of Property by Non-resident Indian (NRI)

The benefits of obtaining a lower rate TDS certificate are enormous. It saves interest on monies that would otherwise get blocked, and also the mammoth hassle of obtaining refund at a later stage. However, there are very people who are availing this facility successfully. There is a plethora of theory on internet on this subject; however, every now & then I keep facing questions, from my friends in the fraternity as well as from clients, on the practical and procedural part for completing the task successfully. With that in mind, I am depicting a comprehensive picture.

Tax deduction written on a piece of paper.

Understand the following before we move to the intricacies involved in actual filing work:

1. Firstly, Section 194IA is not the concerned section for TDS on sale of property by an NRI. Section 194IA is applicable only when the seller in a property transaction is a ‘resident’. So the question of deducting 1% for a document valued above INR 50 lakh or more does not arise.

It is Section 195 which has the provisions enabling withholding taxes on payments to non-residents. Some people would read and try to find the words “tax/ tds on capital gain for non-resident” in this section and some would also try to find the “rates in force” for NRIs. It would be horrendous to do so– I am writing this because this is the question I have faced many times in the past. Please understand Section 195 encapsulates general taxing machinery for withholding taxes on payments to NRI. A property transaction naturally would become a part of it. Also, “rates in force” is not to be interpreted as if some special rates were in force for NRIs, and some would even go on to the extent of presuming as if special rates were in force for property transaction by NRI. Either way, it is not true. It just means the rates in force as applicable to all. And as my friends would be aware, long term capital gain is taxed @ 20% in India with indexation whereas short term capital gain is taxed at the slab rate. Hence, the withholding tax rate for payments to NRI on a property transaction would be 20%.

Tax is to be deducted on the ‘income’ portion and not on the entire sales proceeds. For instance, a property sold for INR 2.5 crore, the indexed cost of which is let’s say INR 1.5 crore, then tax should be deducted only on the profit/ gain portion being INR 1 crore (2.5 minus 1.5). Unfortunately, to ascertain the amount which is liable to TDS, your personal working or a certificate from your accountant will not be enough. This is because it may happen that you have alternative income, and therefore at an ITR level, over-all as an assessee, you may be liable for tax payment on some other income as well. And therefore, sub-section (2) & sub-section (3) to Section 195 provides for making an application to the Assessing Officer for ascertaining the veracity of assessee’s claim, and thus passing an order permitting him to undergo a transaction at lower or nil rate.

Discussion till this point now brings us to the question on the procedural part for obtaining lower rate certificate.

Following documents are needed to be submitted to the jurisdictional wing:

a. Form no. 15D (apropos Rule 29B)

b. Affidavit by non-resident

c. Copy of PAN card

d. Copy of Passport

e. Provision computation of income showing details of overall tax liability for the relevant assessment year, and in specific, the calculation of capital gain on the property transaction

f. Previous years ITR (3 years)

g. Copy of deed of conveyance to be executed

h. Copy of purchase deed

i. Copy of bank statement

j. Letter of Authority

Also, to sum up my experience and to avoid the unwanted back and forth, do note following:

– Application has to be made by the seller or his authorised representative.

– In almost every case it happens that the seller and buyer are assessed under different jurisdictions. Do note that the application has to be made where the seller is assessed, and not the buyer.

– As many of you would be aware, non-residents have a separate assessment wing, named International taxation. All the matters, whether it is in relation to a simple ITR filing or a complex DTAA issue, would be under the charge of international wing. However, sometimes, certain PAN numbers are not updated with the status of assessee being a ‘non-resident’. A practical difficulty thus arises at the departmental level because they have to do an internal transfer. I am not going into the intricacies of it, but should that happen in your case, then simply request the concerned officer to transfer your PAN to the international wing. This would be the first step sometimes.

– If the property is jointly owned, then the application for lower tds has to be made by both the applicants individually. There is no provision for making a single application. Also, some people would presume that obtaining a lower certificate for any one is sufficient for the same transaction. Such a presumption is fallible & won’t sustain.

– If the seller is assessed in Tier-2/3 cities, like Rajkot, Anand, Gandhidham, etc., then in all possibilities the CIT concerned would be at a different geographical location. Thus, in such cases, the file will be couriered to CIT’s office for approval.

– In case the seller is claiming a loss on the property transaction, then department can ask for an explanation along with a copy of report for stamp valuation purposes.

– Average processing time is two months. However, if the file is put up appropriately, approval can be obtained in 20 days.

I have written this article on the basis of our experience in obtaining several certificates on behalf of NRIs across the world. The benefits are far more worth than the procedural hassle involved. Trust it will help you.

[No content given herein should be construed as a professional advice as each case requires a tailor made solution. Author does not solicit work by publishing this article. Should you wish to contact the author, you may do so via Direct email address has not been given to avoid mail spam]

All About TDS On Immovable Property Purchase (194IA)

(Republished with Amendments)

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    NRI does not have any income in India and has not filed IT returns for last 3 years.. What will be the situation.My mobile number is 9821360775 and I am a CA from Mumbai.

  2. Ashok Kumar says:

    Hi Utsav,
    I am in the process of selling a property on which capital gain is apps Rs 95 lacs . How do I convince ITO that I will reinvest the capital gain in another property soon. Is there a way to contact you over telephone. Regards

    1. Karan Batra says:

      The Income Tax Officer is duty bound to check for documentary evidence for allowing exemption. To convince them – you’ll have to submit the proof

  3. Ajay says:

    If NRI wants to sale two properties, then is it recommended to make two separate applications for TDS deduction to save time? Or one application with two requests will need same time as two separate applications? What’s the best approach?

    1. Karan Batra says:

      A single application mentioning details of both the properties would be recommended as it will take less time rather than filing 2 separate applications

  4. vikrambe says:

    I wanted to know the Procedural Aspects for Lower or NIL TDS rate on Property Sale by NRI.

    If the property is jointly owned by one NRI and one Resident Indian, then the application for lower TDS has to be made by both the applicants individually or not?

    1. Karan Batra says:

      Only the non-resident is required to file the application for lower deduction of TDS for his share of sale price.

      For the Resident Indian, TDS would be deducted at a flat rate of 1%

  5. Swapnil says:

    What if NRI doesn’t have PAN ? Is there any provision or chance to apply for lower rate of TDS ?

    Can you plz elaborate on what are the must documents for NRI ?

  6. AMIT DOSHI says:

    Hi, If a person is a NRI individual and do not have any business in India still he has to apply through Form 15D or he should opt to apply in different form?

  7. K.Balasubramanian says:

    Should we have to submit Form No.15CA/15CB towards repatriation of proceeds?. Further, supposing the net LTCG is below the taxable limit on account of respective investments relating to exemption u/s-54, how will it be treated in the hands of Assessee in the country in which he is a resident under DTAA.
    Kindly clarify.

  8. Sachin Jathar says:

    Can we start this process to obtain NIL Tax certificate before the sale transaction? sometimes the buyer has no patience to wait for 2 months. what’s your view?

    1. Deep says:

      Sale of property by NRI in march 21. most of payment made in march 21. capital gain NIL . applied for lower TDS on 1.4.2021.. practical difficulties.
      1. during on line application FY not allowed 20-21 but automatic considered 2021-22.
      2. AO interpreted section and rejected lower TDS as most of payment made and lower TDS on payment and not on transaction.

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April 2024