When it comes to buying and selling property, taxation considerations play a critical role. Both the buyer and seller face tax implications which need to be adhered to as per the Income Tax Act, 1961. In the case of domestic transactions, these processes are quite straightforward. However, for an NRI selling a 2 BHK property in Thane, tax implications are different, not just for the seller but the buyer as well.
In this article, we take a look at the TDS deductions in the case of an Indian property sold by an NRI.
TDS (Tax Deducted at Source)
TDS is a tax-collecting tool by the Indian government to collect taxes at the source of income. In the context of property sales, TDS is deducted by the buyer before making payment to the NRI seller. It is applicable for both residential and commercial properties.
Capital Gains Tax for NRIs
A primary taxation for NRIs selling property in India is the Capital Gains Tax. This can be long or short based on the duration of the property held. If the property has been under the possession of the seller for 2 years or more, they will be charged long-term Capital Gains Tax at 20%, while under 2 years will be charged with short-term Capital Gains Tax as per the tax slab.
TDS Procedure
The process of TDS deduction in property sales involving NRIs involves several key steps:
Obtaining TAN: When purchasing a property from an NRI, the buyer must obtain a TAN number to deduct TDS. If there are multiple buyers, each buyer needs to apply for a TAN number. This requirement is only for the buyer and not the seller.
Filing Forms 15CA and 15CB: Before remitting the sale proceeds abroad, the NRI seller must obtain Form 15CA from the Income Tax Department’s online portal. Additionally, they need to obtain Form 15CB, a certificate from a Chartered Accountant, confirming the applicable tax rate and compliance with Indian tax laws.
TDS Deduction and Payment: The buyer is responsible for deducting TDS at the time of making payment to the NRI seller. The deducted amount must be deposited with the government within the allowed time frame.
Tax Exemptions on TDS for NRIs
NRIs can avail exemptions and relief under certain provisions of the Income Tax Act to lessen their tax liability:
Section 54: Exemption on long-term capital gains if the proceeds are reinvested in another residential property such as a 2 BHK property in Thane within the specified period.
Section 54EC: Exemption on long-term capital gains if the proceeds are invested in specified bonds within six months of the property sale.
Section 54F: Exemption on long-term capital gains if the proceeds are invested in a residential property like luxury homes in Thane other than the one sold.
Conclusion
TDS in the sale of property by an NRI requires careful consideration from both the buyer and the seller. Adhering to all regulations is critical to avoid any legal hassle in the future. Consulting a tax professional can help ensure you receive maximum exemptions while staying compliant at every step of the sale.
