Lower Deduction or NIL Deduction of TDS on Sale of Property by NRI

When an NRI sells property in India, the buyer is required to deduct TDS at a rate of 20% + Surcharge on the gross amount of sale consideration of the property being sold if it is held by the NRI  for more than 2 years before selling the same or at the rate of 30% + Surcharge if it is held for less than 2 years.

As against above, general prescription, Section 197 of the Income Tax Act, 1961 provides a mechanism whereby  NRI  can obtain a lower deduction or Nil deduction of TDS from the tax department after following the procedure prescribed under the Act itself. It is beneficial, particularly for the assessee, where the actual tax liability on account of capital gain is lower than the prescribed TDS rates or there is capital losses or exemptions that reduce the tax liability significantly.

1. Application Submission:

• The NRI needs to submit an application in Form 13 to the Income Tax Department through the TRACES site online along with a provisional computation of income for the year of sale of property disclosing regular income + estimated capital gain as may arise on the sale of property.
• Buyer particulars including his PAN & TAN.
• Copy of ITR for last three financial years if available.

2. Documents required to address the queries as may be raised by the tax department before issuance of lower deduction TDS certificate:

• Agreement to sell the property to be sold.
• Documents in relation to acquisition of property –Purchase/allotment deed/ WILL/ family settlement/gift etc.
• Valuation of the property as of 01.04.2001 by a Govt.  registered valuer, if the property to be sold, has been acquired by NRI before 01.04.2001.
• Documents in support of the cost of improvement/renovation after 01.04.2001.
• Supporting documents for deductions under Sections 54, 54EC, or other relevant sections.

3. Verification of the application filed by the Income Tax Department:

• The Assessing Officer reviews the application and documents as submitted online by the assessee.
• Based on the review, after considering the cost of acquisition/improvement and exemption if any claimed, the Officer issued certificate u/s 197 confirming the appropriate rate of TDS out of consideration to be received by NRI on the sale of a property.
• Once the lower rate or nil rate TDS certificate is issued by the tax department, the buyer of the property needs to deduct TDS as per the rate mentioned in the certificate as against the standard rate of tax on capital gain.

Matter of precaution

• The assessee applicant needs to file the application well in advance so that the certificate can be obtained from the department before the date of registration of the sale deed in favor of the prospective buyer. Normally such a certificate is issued within 30 days of filing of complete application.
• To have professional help and assistance in preparing the application and for necessary liaison with the tax department.

To sum up

It is always advisable to obtain certificate u/s 197 of the Income Tax Act, 1961 as the ultimate cash flow to the NRI on account of the sale of property goes up substantially on the date of the sale of property itself. The assessee need not wait to get a refund of excess tax deducted at source for filing of ITR relevant to the year of sale and thereafter processing of ITR by the tax department. The ITR as may be filed for the relevant year of sale remains fully complied if the tax has been deducted by the buyer at the rate prescribed in the certificate u/s 197 being issued by the tax department.