In a world full of uncertainties, it’s crucial to stay vigilant, especially when it comes to big investments like property. Recently, there have been cases where Non-Resident Indians (NRIs) selling property in India haven’t declared their residential status to Indian buyers. This oversight has significant implications under the Income Tax Act of 1961.
Here’s the deal:
when both the buyer and seller are Indian residents, the buyer is required to deduct TDS (Tax Deducted at Source) at a rate of 1% of the seller if the property’s sale price exceeds Rs 50 Lakhs. However, if the seller is an NRI, the TDS rates shoot up to 20% plus surcharges and cess. Interestingly, the Rs 50 Lakhs limit doesn’t apply when the seller is an NRI; TDS is deducted on the entire sale consideration.
Here’s where things get tricky:
Many NRIs, knowingly or unknowingly, fail to disclose their residential status to brokers or buyers. Consequently, the buyer deducts TDS at 1% instead of the required 20%. This discrepancy often leads to notices from the Income Tax Department, demanding the remaining 19% TDS to be deposited.
In numerous cases, buyers assume the seller is an Indian resident because they hold PAN and Aadhar numbers. However, this assumption can backfire. As a Chartered Accountant, I always advise buyers to confirm the seller’s residential status, especially in cities like Gurgaon, Delhi, Bangalore, and Pune, where the NRI population is significant, and they own numerous properties.
So, what buyer can do?
Well, you can ask the seller for a copy of their passport to confirm their residential status. But, if the seller is hesitant to provide it, you can request a confirmation letter or mention their residential status in the legal documents. These precautions shield you from the burden of high TDS demands. While 1% TDS seems nominal, 20% can be a significant hit. Dealing with the Income Tax Department’s inquiries and appeals can be a hassle, and it’s something every buyer wants to avoid.
Buying a property is a dream for many, but safeguarding your future from unnecessary tax demands is equally important. So, make sure you pay attention to all the details when dealing with property transactions.. After all, a happy home includes financial peace of mind!
Lower TDS Certificate for NRI
Also, It’s crucial for NRIs selling property in India to explore options like obtaining a Lower TDS Certificate (Form 13) from the Income Tax Department. This certificate allows for reduced TDS rates if the gains from the sale transaction are minimal or result in a loss.
A Lower TDS Certificate offers NRIs the flexibility to repatriate their funds out of India immediately after the sale transaction or wait for the Income Tax Department to refund the excess TDS amount after filing their tax returns, albeit with a small interest. This option provides financial relief and simplifies the repatriation process for NRIs.
