There is lot of confusion about tax implications for NRIs who want to sell any property in India. Many questions come to the mind of both Buyer & Seller about taxation aspect. Doubts mainly arise related to TDS rates, filing of TDS Return, claiming Tax Refund, Capital Gain calculation, exemption from tax and remittance of Funds abroad from sale of Property in India. Various queries have been analysed and presented with examples for the easy understanding.

This article is mainly applicable on the following situation:-

1. Buyer of Property: Resident in India

2. Seller of Property: Non Resident Indian (NRIs)

3. Property Type: Sale of Plot, Land, Building, Flat, House Property, Commercial Shop/Complex etc. situated in India

Note: Rural Agricultural Land is not a Capital Asset, hence Capital Gain not chargeable. However Urban Agriculture Land is chargeable under Capital Gains Tax.

Long/Short Term Capital Gain on Sale of Property by NRI

NRIs have to pay tax on the Capital Gains. The tax that is payable on the gains depends on whether it’s a short term or a long term capital gains. When a property is sold, after a period of 2 years from the date it was owned – there is a long term capital gain. In case it held for 2 years or less – there is a short term capital gain. Example:-

Case Date of Purchase Date of Sales Long/Short Term
1 15-04-2019 10-05-2020 Short Term
2 15-04-2019 15-10-2019 Short Term
3 15-04-2018 10-05-2020 Long Term
4 15-04-2002 10-05-2020 Long Term
5 15-04-2000 10-05-2020 Long Term
6 15-04-1985 10-05-2020 Long Term
7 15-04-1945 10-05-2020 Long Term

Inherited/Gifted Property

Tax implications for NRIs are also applicable in the case of inheritance. In case the property has been inherited, remember to consider the date of purchase of the original owner for calculating whether it’s a long term or a short term capital gain. Example:-

Particulars Date
Date of Purchase of Property by Father 15-04-2010
Date of Gift of Property by Father to Son 25-06-2019
Date of Sale of Property by NRI Son 17-04-2020
Asset Long Term/Short Term for NRI Son Long Term

TDS Rates Chart for NRI

Rate of TDS Depends on Two Factors-

1. Long Term / Short Term Property

2. Value of Property Sold (Because Different Surcharge Rates for Different Income Levels)

TDS has to be deducted on entire Sales Consideration & not on the Capital Gains only (Whether Long Term/Short Term)

Long Term Property held by NRI A.Y. 2021-22 (F.Y. 2020-21)
Property Value Income Tax Surcharge Sub Total Cess TDS Rate
A B C= (% of B) D =

B + (B*C%)

E =

(% of D)

F =

D + (D*E%)

Up to 50 Lacs 20.00 20.00 4.00 20.80
50 Lacs to  1 Crore 20.00 10.00 22.00 4.00 22.88
1 Crore to 2 Crore 20.00 15.00 23.00 4.00 23.92
Short Term Property held by NRI A.Y. 2021-22 (F.Y. 2020-21)
Property Value Income Tax Surcharge Sub Total Cess TDS Rate
A B C= (% of B) D =

B + (B*C%)

E =

(% of D)

F =

D + (D*E%)

Upto 50 Lacs 30.00 30.00 4.00 31.20
50 Lacs to  1 Crore 30.00 10.00 33.00 4.00 34.32
1 Crore to 2 Crore 30.00 15.00 34.50 4.00 35.88

Let’s understand the above chart with following examples-

Long Term Property (i.e. Property held for 2 years or more)
Case Sales Value TDS Rate TDS Amount Net Payment
1 15,00,000 20.80 3,12,000 11,88,000
2 30,00,000 20.80 6,24,000 23,76,000
3 60,00,000 22.88 13,72,800 46,27,200
4 1,20,00,000 23.92 28,70,400 91,29,600
Short Term Property (i.e. Property held for less than 2 years)
Case Sales Value TDS Rate TDS Amount Net Payment
1 15,00,000 31.20 4,68,000 10,32,000
2 30,00,000 31.20 9,36,000 20,64,000
3 60,00,000 34.32 20,59,200 39,40,800
4 1,20,00,000 35.88 43,05,600 76,94,400

Computation of Tax/Refund on Long Term Capital Assets of NRI

TDS to be deducted on entire Sales Consideration & not on the Capital Gains Portion only (Whether Long Term/Short Term). But at the time of filing of Income Tax Return, Tax is computed on the basis of Cost of Acquisition, Cost Inflation Index (CII), cost of Improvement & Exemptions available. Hence most of the times, Income Tax Refund is given to assessee after filing Income Tax Return in India on the basis of computation of tax in ITR. Tax Payable @20% Plus Surcharge (applicable rates given above in TDS Chart) Plus Cess (@4%) Example:-

Sale Date 10-04-2019
Sale Value 60,00,000
TDS Rate 22.88
TDS Deducted 13,72,800
Purchase Date 10-05-2001
Purchase Value 17,00,000
Cost Inflation Index 100 (F Y 2001-2002)
Cost Inflation Index 289 (FY 2019-2020)
Indexed Cost 49,13,000
Capital Gains 10,87,000
Tax  Rate* 20.80
Tax Payable 2,26,096
Income Tax Refund 11,46,704

 *Surcharge not applicable in case of Taxable Income below 50 Lakhs.

Note: In case Property was purchased before 01/04/2001, then Circle Rate Value adopted by Stamp Duty Authority can be considered as cost of acquisition as on 01/04/2001. (In case original purchase cost is lower than stamp duty value as on 01/04/2001)

Computation of Tax/Refund on Short Term Capital Assets of NRI

Benefit of Cost Inflation Index is not available in Short Term Capital Gains. This Gain is added to other Incomes of NRI in India & taxed as per slab rates.

Sale Date 10-04-2019
Sale Value 60,00,000
TDS Rate 34.32
TDS Deducted 20,59,200
Purchase Date 01-05-2017
Purchase Value 49,50,000
Indexed Cost Benefit not available
Capital Gains 10,50,000
Tax  Rate As per Slab
0 To 2.50 Lakh NIL
2.50 Lakh to 5 Lakh 5%
5.00 Lakh to 10 Lakh 20%
Above 10.00 Lakh 30%
Cess 4%
Tax Payable 1,32,600
Income Tax Refund 19,26,600

In case NRI is also having some other incomes in India (other than this Capital Gain’s), then Refund would be adjusted for their Tax Liability as well.

How to save Tax on Capital Gains by NRI?

NRIs are allowed to claim exemptions (for long term capital gains) under section 54 (by purchase of another House Property) and Section 54EC (Investing in specified Bonds).

Exemption under Section 54

It is available when there is a long term capital gain on the sale of house property of the NRI. The house property may be self-occupied or let out. Please note – you do not have to invest the entire sale receipt, but the amount of capital gains. Of course, your purchase price of the new property may be higher than the amount of capital gains.

Exemption is under Section 54EC

You can save the tax on your long term capital gains by investing them in certain bonds. Bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) have been specified for this purpose. These are redeemable after 5 years and must not be sold before the lapse of 5 years (Prior to 2018, it was 3 years) from the date of sale of the house property. You are allowed to invest a maximum of Rs 50 lakhs in a financial year in these bonds.

NRI want to get TDS deducted at Lower Rate/NIL Rate i.e. Zero Rate?

NRI can apply u/s.197 to Income Tax Department in the Form 13 online on Traces portal that Capital Gains Tax is taxable at effective lower/Nil rate of tax due to indexed cost of acquisition /cost of improvement/Exemption benefit availed etc.  Then Buyer of property would deduct TDS at such lower rate/Nil rate. Thus NRI can repatriate higher amount of funds to his/her NRE Account/remittance abroad.

TDS Return to be filed by Buyer of Property from NRI

Form 27Q (with the TAN of Buyer)

Section of TDS Deduction: 195

Buyer should first obtain TAN under section 203A of the Income Tax Act, 1961 before deducting TDS. TAN can be obtained by filling up the Form 49B.

TDS must be deducted at the time of making the Sales consideration payment to the NRI. The information about the TDS being deducted and the rate at which it was deducted should be mentioned in the sale deed between the NRI seller and the buyer.

The TDS deducted by the buyer should be deposited through Challan No. ITNS-281 for TDS payment on or before the 7th of next month in which the TDS is deducted.

In case of more than One Buyer, Separate TDS Return has to be filed by another buyer for his/her proportion of Purchase Value.

Note: Form 26QB is applicable in case of Seller of Property is Resident in India. (TDS @1% in case of Sales Consideration exceeding 50 Lakhs)

Remittance of Funds abroad/Transfer from NRO account to NRE account

In the case of repatriation of sale proceeds of immovable property by NRIs/PIOs, ADs can allow repatriation thereof even if the immovable property was held by the NRIs/PIOs for less than 10 years provided the cumulative period of holding of the immovable property in India and retention of the sale proceeds of the property in the NRO Account is not less than 10 years. Refer following article published by author on Taxguru.in for detailed discussion on this matter.

https://taxguru.in/rbi/transfer-funds-nro-account-nre-account-remittance.html

 Disclaimer: Please refer all the relevant section, rules, notifications and amendments as applicable. The Author is not responsible for any losses incurred. Content is merely for sharing knowledge & Educational Purpose only. Author can be reached at casagargambhir@gmail.com for any queries, issues & recommendations relating to article. 

Tags: ,

Author Bio

More Under Income Tax

11 Comments

  1. Somnath Das says:

    Dear sir pls help
    i want to buy a flat from NRI
    property owner both husband & wife
    there is a GPA in favour of wife’s brother
    sale amount is 50 lacs
    circle rate in 50000 per sqm for 89 sq.mtr
    pls suggest

  2. Sanjay K says:

    Hello, I am a PIO from Canada planning to buy Apartment in HYD either from builder or resale. Do I have to pay TDS when buying? Please advise.
    Thank You

    1. CA Sagar Gambhir says:

      In case you are buying property from resident person for value exceeding 50 Lakhs , then you need to deduct TDS @1% at the time of payment. (Only 99% payment will be paid, rest 1% to be deposited as TDS). Form 26QB will have be filed

  3. Dhanraj Jain says:

    TDS Return to be filed by Buyer: Typing error for filing TDS Return as Form 26 Q is written in place of 27 Q, which may be corrected please

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

October 2020
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031