Properties sold in India by NRIs are liable for taxation and TDS is required to be deducted under the Indian income tax laws. An NRI who wants to sell a property situated in India has to pay tax on capital gains.
In this article, we will discuss the applicability of TDS on Sale of Property by NRI in India.
Tax implications for NRIs selling property in India
Your tax liability on the sale of your property in India will depend on the period of time for which you have held it. If you sell a property that you have owned for more than 2 years, then you will be liable to pay a long-term capital gains tax. In case a property is held for 2 years or fewer, the short-term capital gains tax will be applicable.
The date of the purchase of the property by the original owner will be considered for calculating capital gains on an inherited property.
TDS on sale of property by NRI in India
TDS (Tax Deducted at Source) shall be deducted whenever any property is sold/ purchased. The buyer needs to deduct some amount (called TDS) and pay the balance to the seller.
The amount to be deducted depends on the residential status of the seller. In case the seller is a resident Indian, 1% of the sale price of the property will be deducted as TDS.
In the case of an NRI seller, the amount of TDS to be deducted will depend on the quantum of money received by the seller.
TDS rates applicable on the sale of property owned by NRIs are as under:
- 1. Long-term capital gains tax on the sale of property held for more than 2 years: 20%.
- 2. Short-term capital gains tax on the sale of property held for less than 2 years: As per the income tax slab of the NRI seller.
Surcharges and cess would also be charged on the capital gains. Here are the effective rates of TDS on the sale of property by NRI for long-term capital gains.
| Particulars | (A) Long-term capital gains tax | (B) Surcharge on LTCG tax | (C =A + B) Total tax (incl surcharge) | (D) Health & education cess | (C+D) Applicable TDS rate (incl surcharge + cess) |
|---|---|---|---|---|---|
| Sale price < Rs. 50 lakh | 20% | Nil | 20% | 4% of total tax | 20.8% |
| Sale price Rs. 50 lakh to Rs. 1 crore | 20% | 10% of LTCG tax | 22% | 4% of total tax | 22.8% |
| Above Rs. 1 crore | 20% | 15% of LTCG tax | 23% | 4% of total tax | 23.92% |
TDS on sale of property by NRI in India
The maximum surcharge rate on tax payable on dividend income and capital gain mentioned in Section 112 of the Income Tax Act has been capped at 15% as announced in Union Budget 2022.
Hence, regardless of whether the value of the property sold by an NRI is Rs. 1 crore or Rs. 5 crores, or even Rs. 10 crore–the rate of TDS will remain the same i.e. 23.92%.
In the case of short-term capital gains, surcharge and cess would be added to the applicable tax rate as per your income tax slab in the same manner as in the case of long-term capital gains.
The TDS shall be deducted when any payment is made to the NRI seller for the purchase of property, even if the advance is being paid. The TDS shall be deposited by the buyer with the Income Tax Dept.
The TDS on the purchase of property from NRI shall be deducted regardless of the transaction value of the property. Even if the price of the property is less than Rs. 50 lakh, the TDS shall be deducted.
Chartered Accountant in Pimpri Chinchwad