As a seller when you are selling property, it’s crucial to inform the buyer about your residential status, whether you’re a resident or non-resident of India. If you’re a resident, the buyer will deduct TDS at a rate of 1% on the sale consideration when it is up to Rs 50 lakhs. The buyer deposits this TDS by filing Form 26QB under section 194IA of the Income Tax Act, 1961.
On the other hand, if you’re a non-resident, the TDS rate increases to 20%, plus a surcharge when the sale consideration exceeds Rs 50 lakhs plus cess. It’s essential to understand that TDS is deducted on the sale price and not on the capital gain by the buyer.
For sale considerations below Rs 50 lakhs, the effective TDS rate is 20.80%. For sale considerations between Rs 50 lakhs to Rs 1 crore, the effective rate is 22.88%. For sale considerations between Rs 1 crore to 2 crore, the effective rate is 23.92%. If the sale consideration falls between Rs 2 crore to Rs 5 crore, the effective TDS rate is 26%. For sale considerations exceeding Rs 5 crore, the TDS rate stands at 28.496%.
To benefit of lower TDS rate certificate, which is calculated on the actual gain earned from the property sale, you should apply for a lower TDS certificate under section 197 as an NRI.
Here’s a chart summarizing the TDS rates based on the sale consideration for NRIs selling property in India:
| Sale Consideration Range | Surcharge (%) | TDS Rate (%) |
| Up to Rs 50 lakhs | Nil | 20.80 |
| Rs 50 lakhs to Rs 1 crore | 10 | 22.88 |
| Rs 1 crore to Rs 2 crore | 15 | 23.92 |
| Rs 2 crore to Rs 5 crore | 25 | 26.00 |
| Above Rs 5 crore | 37 | 28.496 |
Please note that the TDS rates mentioned above are for non-resident sellers. If the seller is a resident, the TDS rate is 1% for sale considerations exceeding Rs 50 lakhs.
Considering the above scenario, it has been observed that NRIs often fail to declare their residential status to the buyer, either intentionally or unintentionally. Additionally, many buyers are unaware of the applicable TDS rates for property sales, whether they are purchasing from a resident or non-resident.
As a result, when a buyer deducts TDS at 1% for a resident seller, there are no legal complications for either party. However, when the seller is an NRI and the buyer deducts TDS at 1%, it may lead to legal challenges and complications for the property buyer.
In a recent case, Mr. A, the buyer of the property, deducted TDS at a rate of 1% for an NRI seller, unaware of the seller’s non-resident status. Instead of the correct rate of 20%, Mr. A applied a 1% TDS rate. When the NRI updated his residential status as non-resident while filing his income tax return, the assessing officer noticed the discrepancy and issued a notice to Mr. A for short-deduction of TDS.
Mr. A explained that the TDS was deducted unknowingly due to the lack of information about the seller’s residential status and that it was unintentional. The NRI also filed his income tax return and paid the applicable tax on the property sale, ensuring no loss to the government due to the short deduction. Despite this, the assessing officer levied interest on Mr. A as an assessee in default under sections 201 and 201(A) of the Income Tax Act.
Frustrated with the assessing officer’s order, Mr. A appealed before the Commissioner of Income Tax, who upheld the AO’s decision. Consequently, Mr. A approached the tribunal. The tribunal’s decision on the matter was as follows:
We have given a thoughtful consideration to the orders of the authorities below. When the captioned assessee purchased the impugned property from Mr. Hardeep Singh, they were unaware of the fact that the Mr. Hardeep Singh was an NRI nor this fact was disclosed by the seller. The purchasers under the bonafide belief and in good faith deducted tax at source @ 1% which was the applicable rate on such transaction. Therefore, it cannot be said that the purchasers wilfully deducted tax at a lower rate.
It is only when Mr. Hardeep Singh filed his return of income; the AO as well as the captioned assessees came to know that Mr. Hardeep Singh was an NRI. Since the transaction was concluded earlier, therefore, the purchasers could not do anything.
Considering the peculiar facts of the case, we are of the considered view, that the impugned purchasers i.e. the five captioned assessee could not be considered as assessee in default and therefore in our considered view on the given facts of the case interest under provision of Section 201(1) & 201(1A) of the Act are not applicable. We therefore, direct the AO to delete the interest charged in the hands of the captioned assessees.
Ajay Dudeja vs Income Tax Officer, International Taxation, Gurgaon. ITA No:- 1135/Del/2020 (Assessment Year: 2015-16) ITAT Delhi Bench
Therefore, it’s crucial for property buyers to verify the residential status of the seller before proceeding with the transaction. Nowadays, sellers may not disclose their residential status either due to the higher TDS rates applicable to NRIs or a lack of awareness regarding lower TDS certificates available for NRIs. Buyers should exercise caution when investing in property, considering both growth potential and tax implications. The difference between a 1% and 20% TDS rate can result in a significant tax liability, which shouldn’t be overlooked. Negligence in confirming the seller’s residential status can lead to legal complications, so it’s essential to be well-informed and compliant to avoid potential litigation.
