Questions Legal

How NRI's can lower TDS on property sale?

Airtract

Sidharth Kumar

YOU BECOME WHAT YOU BELIEVE

It is a mandatory responsibility of a law-abiding citizen to pay tax to the government over a considerable amount of transactions under any circumstances. The rate of tax is calculated by the Income Tax department of each country. The tax varies from one to another based on the criteria of capital movement. 


TDS(Tax Deducted at Source)is one kind of Tax introduced by the Income Tax department, which is collected in an indirect way to control and govern the money flow from one person to another. Not everyone performing a money transaction has to pay this tax. If you are giving or paying an amount higher than a threshold value, you are liable to pay the TDS. Generally, the TDS range from 1%- 30% depending on the income source.

A person or enterprise paying the tax(Deductor) and person or enterprise receiving the payment(Deductee) must be aware of the TDS even though it is the deductor who is paying the tax. The method adopted for the payment of money is not a vital factor in determining the case of TDS payment. The TDS is expected to be paid in the following payments.

  • Rental payments

  • Salary

  • Interest payment 

  • Professional fees

  • Incentives and commission fee

  • Purchase of property


But people are not expected to pay the TDS on payment to service providers like doctors, advocates, etc.

TDS Return

TDS return is a statement submitted by the deductor to the I-T department of India in a quarterly period. The submission of the TDS return is mandatory before the due date. To create the TDS return sheet, you need details regarding

  • Amount paid as TDS to the government

  • PAN Card of both deductor and deductee

  • Payment challan information


How NRI's can lower TDS?

There is two method NRI's selling properties can adopt to reduce the TDS on the property sale.

  1. NRIs Lower Tax Deduction Certificate 

  2. NRIs Tax Exemption Certificate 

Here we will discuss the circumstances to apply for these certificates and how to apply for the same.

a) NRIs Lower Tax Deduction Certificate

The seller might be paying a massive amount of TDS, even when there is no attributable loss. We will discuss the following with the help of an example.

Example:

Assume Mr. Rajeshvaran is an NRI who has been living in Kuwait for six years. Rajeshvaran sold his plot for 1.2 Crs, which was bought for 55 lakh. The property purchaser subtracted the TDS on the cumulative sale cost of the property. Rather than subtracting TDS on LTCG solely u/s 195 of the Income Tax Act, 1961, it would deduct the LTCG sum.

So the TDS and the LTCG accountability for Mr. Rajeshvaranis explained in detail below.

The Capital Gain acquired by Mr. Rajeshvaran is less for 7 years. What to do next?

Under such circumstances, you may reduce your TDS on LTCG by demanding for the LTD Certificate from your income tax officer. Presented that you are compliant to handle the LTCG TDS, the income tax officer will dispense the certificate. Entire details regarding the calculation and deduction of TDS for property sale will be mentioned and clarified in the certificate. What

What we are doing is directing to subtract TDS only on LTCG alternately to the complete trading cost of the property.

The seller must render the buyer with the Lower Tax Deduction Certificate, allowing him/her to assess and deduct a lower TDS. In the case of Mr. Rajeshvaran, the TDS deduction would have been the following if he had issued the LTD certificate prior to registration transfer.

So by performing a single step of giving an LTD certificate prior to registration, Mr. Rajeshvaran would have saved 20 lakhs from the deduction on TDS.

b) Tax Exemption Certificate for NRIs: 

If an NRI is willing to re-invest the Long Term Capital Gain, he/she can inquire about being excused from the Long Term Capital Gain tax. What you must get concerned about is to submit an application for Tax Exemption Certificate from authorized income tax officer.

The reinvestment may be immovable property as real estate in India or Capital Gain Bonds. NRI is excluded from tax by re-investing in tax-free securities in India. During the purchase of Capital Gain Bond, you must relinquish an affidavit in front of the income tax officer, ensuring your Captial gain value investment in Capital Gain Bonds. After specific research, the authorized income tax officer will release the Tax Exemption Certificate, which will exclude you from TDS. 

Keep in mind that while you are holding tax exclusion due to the Tax Exemption Certificate, you are liable to register income returns to the corresponding income tax officer.


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