Navigating TDS Deduction Liability When Selling Property in India: How to Obtain a Lower/Nil TDS Deduction Certificate

TDS Deduction Liability When an NRI Sells Property in India:

Your Guide to Lower/Nil TDS Deduction Certificates

Selling property in India can be a significant financial transaction, especially for Non-Resident Indians (NRIs). However, navigating the tax implications, particularly the Tax Deducted at Source (TDS) obligations, can be complex. In this blog, we’ll explore the TDS liability when an NRI sells property in India, the option of obtaining a lower or nil TDS deduction certificate, and how to go about it.

What is TDS and Why Does it Matter?

Q: What exactly is TDS, and why do I have to worry about it when selling my property in India?

When selling property in India, the buyer is responsible for deducting TDS on the sale consideration before making payment to the seller. This requirement is part of Section 195 of the Income Tax Act, 1961, which ensures that income earned by non-residents, including NRIs, is taxed appropriately.

The TDS rate varies depending on whether the property is considered a long-term or short-term capital asset:

• Long-Term Capital Gains (LTCG): If you’ve held the property for more than 2 years, the TDS is deducted at 20% on the capital gains.

• Short-Term Capital Gains (STCG): If held for 2 years or less, the TDS rate is 30% on the capital gains.

These rates are further affected by applicable surcharges and cess, which can increase the overall TDS.

Challenges with Standard TDS Deductions

Standard TDS deductions can present several challenges for NRIs:

• Excessive Deduction: TDS might be deducted on the entire sale amount rather than just the capital gains, or it may be based on a higher rate, leading to over-deductions.

• Cash Flow Issues: Over-deduction can tie up funds that could be used for reinvestment or other purposes, affecting your liquidity.

The Option for a Lower/Nil TDS Deduction Certificate

To address these challenges, you can apply for a Lower/Nil TDS Deduction Certificate from the Income Tax Department. This certificate allows for TDS to be deducted at a reduced rate or not at all, based on your actual tax liability.

Benefits of Obtaining the Certificate:

• Accurate Deduction: Ensures TDS is deducted only on the capital gains, preventing over-deductions.

• Improved Cash Flow: Access to funds is improved as TDS is reduced or eliminated.

• Simplified Compliance: Reduces the hassle of dealing with excess tax and potential delays in refunds.

How to Apply for a Lower/Nil TDS Deduction Certificate

• Prepare Your Documents:

  • Collect documents related to the transaction, such as the purchase agreement, proof of purchase price, details of expenses (e.g., stamp duty), and draft sale agreements if available.

• Submit Form 13 Online:

  • Login: Access the Income Tax e-filing portal with your PAN and password.
  • Navigate: Select "e-File" and then "Form 13 (Application for Lower/Nil Deduction of TDS).​ 
  • Fill in Details: Provide the required details, including sale consideration, estimated capital gains, and upload supporting documents.
  • Submit: After completing the form, submit it to receive a reference number for tracking.
  
  
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• Await Assessment:

  • The Assessing Officer will review your application and may request additional information. If satisfied, they will issue the certificate specifying the lower or nil TDS rate.

• Provide the Certificate to the Buyer:

  • Share the certificate with the buyer so they can deduct TDS as per the certificate, ensuring compliance and avoiding excess deduction.

Conclusion

Understanding and managing TDS obligations when selling property as an NRI can be complex, but the option to obtain a Lower/Nil TDS Deduction Certificate simplifies the process. By following the steps outlined, you can minimize TDS deductions, improve your cash flow, and ensure a smoother transaction.