When an NRI (non-resident Indian) sells a property in India, the buyer has to deduct TDS (tax deducted at source) and deposit the same with the tax department. However, unlike in the case of buying property from a resident, TDS has to be deducted on the amount of capital gains rather than the whole value of the property. However, to avoid the hassle of calculating capital gains and reducing the chances of error, the buyer generally deducts the TDS on the entire sale value.
In the case of NRI sellers, the buyer needs to deduct TDS at the rate of 20% post indexation in case of long-term capital gains. If the property is sold before 2 years, short-term capital gains tax will be applicable. In case of short-term capital gains, TDS must be deducted at the rate of 30%.
The calculation of capital gains may not be easy and straightforward. Apart from this, the buyer might face issues with respect to determining the residency status of the NRI and TDS calculation. The seller may not disclose the residency status or may declare the status as “Resident Indian” to avoid higher TDS deduction. Also, at times the NRI may not be sure about his or her residency status. Therefore, to avoid the hassle of calculating capital gains or wrongly calculating capital gains, buyers generally deduct TDS on the whole amount.
However, to avoid this, a lower TDS certificate from the tax department can be obtained beforehand. “There is a specific Form 13, which needs to be filed with the tax department. After checking the documents, the tax department will issue a lower TDS certificate and will give the exact percentage of TDS that needs to be deducted by the buyer,” said Prakash Hegde, a Bengaluru-based chartered accountant.
“We generally advise our NRI clients to go with this certificate to avoid higher TDS deduction. Either the buyer or the seller can apply for this certificate. However, generally the sellers apply for it as there is a clearly defined process,” he added.
Therefore, if you are an NRI selling property in India, get this certificate to avoid higher TDS deduction in case of selling a property; or the buyer can use this to avoid any penalty on account of wrong calculation of the TDS.
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