TDS rules when buying a property from an NRI seller

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Under the India income-tax law, if the seller qualifies as a non-resident in India during the relevant financial year, the buyer is required to deduct TDS at specified rate (plus applicable surcharge and health and education cess) on taxable capital gain on sale of immovable property. The specified rate is 20% (plus applicable surcharge and health and education cess) in case of long-term capital gains (LTCG) and 30% (plus applicable surcharge and health and education cess) in case of short-term capital gains (STCG). 


Accordingly, you as a buyer is liable to deduct TDS and not the bank.

Any immovable property held for a period of more than 24 months is classified as a long-term capital asset (LTCA). In case of an LTCA, taxable capital gain will be net sale proceeds less indexed cost of acquisition (i.e. adjusted as per the Cost Inflation Index or CII) less indexed cost of improvement.

The seller is entitled to exemption in respect of LTCG tax under specified provisions of the India income-tax law, subject to fulfilment of attached conditions thereon.

Accordingly, it is important for the buyer to determine the taxable value of capital gains (LTCG or STCG) in the hands of the seller for TDS purposes, subject to any tax relief available under the applicable Double Taxation Avoidance Agreement. While computing the capital gains, the buyer also needs to evaluate whether the stamp duty value of the property exceeds 105% of the sale consideration. If so, there are additional tax implications for both the buyer and the seller. If the taxable amount of capital gain is nil, there will be no TDS implications.

There are penal consequences if there is a default in deposit of TDS. Thus, it is important that the residential status and the taxable amount of capital gain is calculated accurately. You may obtain an affidavit-cum-declaration for residential status and taxable capital gain from the seller. 

Regards,
CA Pankit A. Shah
Chartered Accountant

Office Address :- 
35, 4th Floor, Shree Krishna Center, 
Near Mithakhali Six road,
Navrangpura, Ahmedabad-380009.
Office Phone :- 079-4898 5464
Mobile No. :- 92272 30943
email id - capankitshah007@gmail.com





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