TDS on Property Purchase from NRI: Rules & Rates

If you are looking to buy or sell any property in India, you need to be aware of the NRI taxation rules and TDS for such transactions.

In this blog, we will explain the meaning of TDS on property purchases by NRIs, the applicable rates, the tax implications for NRIs in property transactions, and the process for TDS reduction.

What are the TDS Rates on Property Transactions with NRIs?

If an NRI wants to purchase a property in India, different rules apply based on the property's holding period and the value of the property being sold. 

Below are given the different types of TDS rates on property transactions with NRIs:

• Long-Term Capital Gains (LTCG)
• Short Term Capital Gains (STCG)

For the TDS purchase of any immovable property, apart from agricultural land, from an NRI, the tax rate is calculated based on short-term or long-term under Section 195 of the Income Tax Act. 

For example, imagine that an NRI purchased a property in 2022 for INR 60 lakhs and sold it in 2026 for INR 1.2 crore. After holding it for more than 24 months, it will be considered as long-term capital gains. Hence, the TDS rate will be 20% on the amount of indexed gain and sent to the NRI seller. 

What is the Applicability of TDS on the Purchase of Property from an NRI? 

If an Indian resident plans to purchase any property in India from an NRI, a specific amount of TDS will be applied to the property transaction, which is deducted by the buyer under the Indian Income Tax Act. 

No Minimum Threshold 

The TDS on the purchase of a property by an NRI applies to the sale of all types of property. You will not get any minimum threshold or exemptions from the TDS properties, such as commercial, residential, or agricultural fall under this category. 

Applicability Under Section 195

The TDS requirement for the purchase of property from NRIs comes under Section 195. It means that the TDS rate will apply to the capital gains from your sale, as well as to the property value. 

For example, if you are an NRI selling a property for INR 80 lakh, the buyer will deduct TDS from the overall purchase cost based on the short- or long-term capital gains rate. 

TDS on Property Purchase from NRI for More than INR 50 Lakh? 

If an NRI sells his property or purchases any property from an NRI that is valued at more than INR 50 lakh, the TDS will be applied as per section 195 of the Income Tax Act, 1961.

The tax implications of a property are different which is sold by the resident seller:

No relaxation in Threshold: If the value of your property is more than INR 50 lakh, TDS will be applied to the full sale amount. 

TDS Applicable rate: The TDS rate on property purchase from an NRI will be under section 195 and will be based on LTCG or STCG. 

Role of Buyer: The buyer will be responsible for the Tax Deducted at Source (TDS) and for depositing it with the government before the payment is released by the seller. 

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Responsibilities of the Buyer Before Deducting the TDS

If you are selling your property in India as an NRI, then the buyer will be fully responsible for the TDS deduction under Section 195.

Given below are some of the steps for smooth TDS on the purchase of a property by an NRI: 

TAN Before TDS Deduction 

• When purchasing property from an NRI, the buyer needs to provide a Tax Deduction and Collection Account Number (TAN) beforehand. 
• This helps the buyer to have a smooth TDS deduction from the sale of property and report accurately to the Income Tax Department. 
• Failure to obtain a TAN will result in complications and penalties for TDS on the property purchase by an NRI. 

Requirements of Buyer for TDS Deduction 

The buyer needs to comply with all TDS rules when purchasing immovable property from an NRI. 

1. Determining the nature of gains: You need to check the property's holding period to determine whether it is a long-term or short-term capital gain. 
2. Calculate the TDS: The buyer needs to calculate the tax rate based on the property period holding, along with surcharge and cess. 
3. Deposit TDS: The buyer should complete and submit Form 26QB to the Income Tax Department. 
4. Form 16A (TDS Certificate): It is an official form that confirms the NRI seller's eligibility to file Income Tax returns in India. 
5. Maintain Records: You need to keep proof of TDS deduction for future reference, along with proof of payment. 

What is the TDS Deduction Process? 

The most important part in TDS deduction on the purchase of property by an NRI is proper filing and certification, along with the correct documentation, so that you have a smooth and easy process for TDS deduction. 

Process to File Form 27Q and Generation of Form 16A

1. Go to the TIN website.
2. Make a deposit of TDS by using Form 27Q. 
3. Go to the TRACES portal and issue a Form 16A (TDS certificate). 
4. The TDS certificate will be required for the NRI seller's ITR and capital gains report. 

How to Get Form 16B (TDS certificate)

When the buyer deposits the TDS, they must file Form 27Q online via the TIN-NSDL website or the TRACES portal. 

After filing Form 27Q, the buyer can download Form 16A along with Form 16B, a specific certificate for TDS on property transactions. 

The form should be provided to the NRI seller within 15 days of the Form 27Q due date. 

What are the Documents Required for TDS Deduction? 

Here are the documents you will need for TDS deduction on the property purchase from an NRI. 

• Proof of address of the NRI seller. 
• PAN of the NRI seller. 
• Proof of payment of TDS. 
• Property sale deed
• Form 26QB (if required). 

TDS Deduction Timeline 

For the TDS deduction, you will have a time period of 30 days for paying the TDS, starting from the last day of the month in which the deduction is made for a property purchase from an NRI. 

Paying early will not incur a penalty or interest under section 201(1A). 

Tax Implications for Buyers and NRIs for the Purchase Transactions 

You should be aware of the tax implications for TDS on the purchase of any immovable property from an NRI. This will ensure a smooth transaction in compliance with all income tax rules, avoiding penalties. 

For NRIs: 

• NRIs need to pay capital gains tax based on the holding period of the property. 
• An NRI should apply for the Nil/Lower TDS certificate by filing Form 13. They should follow all FEMA repatriation guidelines when sending funds to a foreign country. 

For Buyers: 

• Under section 195, a buyer must deduct the TDS at the applicable rate when purchasing property from an NRI. 
• Depositing the TDS on time and maintaining proper records help avoid paying penalties. 

Repatriation Rules After the TDS Deduction

The repatriation of funds is subject to the guidelines under the Foreign Exchange Management Act (FEMA) and Income Tax laws. 

When the buyer deducts the TDS on the purchase of any immovable property from an NRI, then the NRI seller can transfer the funds to a foreign country. 

Ensure you provide all the required forms and documents for smooth, legal registration, to avoid delays and rejections. 

Process to File Form 15CA and 15CB for Transfer Sale Proceeds 

The following is the process to file Form 15CA and Form 15CB:

Form 15CA 

This form is filled out online with the Income Tax Department. It is used for the proof that the amount is payable to the resident. This form states that you have filed and paid all the due taxes before remittance. 

Form 15CB

This is a confirmation form confirming that your TDS has been deducted under the Income Tax Act, in accordance with applicable Indian tax laws. This form is signed and verified by the chartered accountant. 

It is an important form required at the time of remitting sales to foreign countries. These are filed with the authorized dealer bank before starting the remittance procedure. 

How Can I Reduce TDS on a Property Purchase from an NRI? 

By following the points given below, you can reduce the TDS deduction on a property purchase from an NRI. 

• Through applying a TDS certificate for lower. 
• Getting a zero TDS deduction on Form 13. 

These can help you to lower your TDS on a property purchase in a real estate transaction. 

You need to submit the application to the Income Tax Department and obtain the TDS certificate. Once it is approved by the authorities, you will get a reduced TDS liability. on the sale of your property. You can send this TDS certificate to the buyer so that TDS is deducted at the approved rate. 

Important Points in TDS Consideration in TDS on Purchase of Property from NRI? 

If you purchase any property in India from an NRI, then the buyer will be responsible for the TDS deduction. 

To ensure a smooth transaction, you must follow all the rules and regulations and keep the factors below in mind. 

• Your TDS will be deducted on the full amount of the transaction, not just the capital gain. 
• You will need a TAN for depositing TDS under Section 195. 
• You need to deposit the TDS within 7 days of the end of the period in which the deduction is made. 
• Form 16A is used for the proof of deduction, and Form 27Q is used for the payment of TDS deduction. 
• If the seller's PAN is available and operative, TDS may be applied at 20% or more. 

Conclusion

Follow all guidelines for smooth TDS on priority purchases from NRIs and ensure hassle-free transactions between NRIs and Indian citizens. 

Submitting paperwork, filing the proper forms, making regular deductions, and paying on time help you avoid penalties and ensure an efficient process. 

You can also take expert advice from the skilled and qualified agent at the Visament website, who will provide you with a smooth TDS on NRI property transactions, TDS planning, and tax implications on purchasing property in India from an NRI. 

For more information, you can visit the Visament website, where your agents are ready 24/7 to help you resolve all your queries and doubts related to TDS on property purchase by NRIs.