When a non-resident Indian (NRI) sells a property, as per Section 195 of the Income-Tax Act, TDS is required to be deducted at 20% plus surcharge and cess by the buyer from the sale consideration. The TDS rate would be higher (30% plus surcharge plus cess) if the immovable property was held for less than two years. Further, there is no minimum threshold limit for TDS deduction.
This TDS is deductible irrespective of whether money is received in India or outside India or even if the final tax liability in the hands of the seller is much lower. In such cases, the seller can apply for a specific lower deduction tax certificate.
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Step 1: Calculate capital gains, tax liability
The seller needs to obtain the stamp duty valuation to ensure that the sale price is not less than fair market value. Based on the stamp duty value or sale consideration, whichever is higher, he should compute the capital gains and consequent tax liability. In case of loss or a significant difference between the final tax liability and the TDS, the seller will have good cause to file for a lower withholding certificate.
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Step 2: TAN of the buyer
The seller has to submit the valid TAN of the buyer at the time of filing the application. In case the buyer does not have one, he can obtain the same in 7 to 10 days by filling an application in Form 49B.
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Step 3: Collect documents for lower withholding certificate
The application for lower withholding certificate is filed in Form 13, online. For the application, the seller is required to submit the following three sets of documents:
- Documents pertaining to the proposed sale such as MOU, stamp duty valuation, purchase agreement evidencing the cost of acquisition and bank statement /receipts of payment made at the time of purchase of the property.
- Documents evidencing the estimated computation of income for the financial year in which the property is sold. The estimate computation should include all income that the assessee has received or is receivable during the year and consequent tax liability on the same.
- Documents evidencing that no tax liability is due for the previous four years. The assessee is required to submit previous years income tax returns, form 26AS, and any past assessment orders.
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Step 4: Register on the I-T portal and file application
Once the application is submitted, the assessing officer will examine it, ask for additional information if needed, before issuing the certificate or rejecting the application. It generally takes three to four weeks for processing the application. Further, the department issues certificates for withholding tax based on the merits of the case. A lower withholding certificate is valid till the end of the financial year and the seller should ensure that the payment is processed within the time frame mentioned in the certificate.
Further, for any reason, if TDS is deducted at a rate higher than the final tax liability of the seller, the seller can always file his tax return and claim a refund of the excess TDS deducted. The lower withholding certificate only ensures that the cash flow of the seller is not adversely affected on account of higher TDS.
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Deduction norms
- Section 195 of the I-T Act requires TDS at 20% plus surcharge and cess from the sale proceeds
- The TDS rate is 30% plus surcharge plus cess if the property was held for less than two years
- If the final tax liability is much lower, the NRI can apply for a specific lower deduction tax certificate
