When NRIs sell property in India, TDS (Tax Deducted at Source) becomes a key compliance requirement under Section 195 of the Income Tax Act. Understanding NRI property sale TDS becomes crucial for both sellers and buyers, as the purchase of property from NRI TDS requirements differ significantly from resident transactions. State Bank of India (SBI), as India's largest public sector bank with extensive NRI services, provides comprehensive support to Non-Resident Indians navigating property transactions and TDS compliance requirements. This blog explains the key aspects of TDS on property sales by NRIs, the applicable rates, procedures, and important considerations.

TDS Applicability on Property Sale by NRIs

For NRI property sale tax deduction, the legal framework is provided under Section 195 of the Income Tax Act. This section mandates that any person making a payment to a non-resident must deduct tax at the source from such payments if they are taxable in India.

SBI facilitates NRI property transactions through specialised services including NRO account management for property sale proceeds, authorised dealer services for fund repatriation limit, and dedicated NRI relationship managers who guide customers through TDS compliance requirements.

How TDS Differs for NRIs vs. Resident Indians

The TDS on sale of immovable property by NRI differs significantly from that applicable to resident Indians:

TDS Deduction Process: Responsibilities of Buyers and NRIs

For NRI Property Buyers

When purchasing immovable property in India from resident sellers, NRI buyer must follow these tax deduction steps:

• Obtain seller's PAN (Permanent Account Number)
• Deduct the appropriate amount under the purchase of property TDS rules
• Deposit the TDS on sale of immovable property with the government within the prescribed time limits
• File Form 26QB online within one month from the end of the month in which property sale TDS was deducted
• Issue Form 16A to the seller as proof of tax deduction at source

For NRI Property Sellers

NRI sellers involved in Indian property transactions should:

• Share PAN details to facilitate proper TDS on the transaction.
• Ensure correct TDS amount for property sale is deducted
• Collect Form 16A from the buyer as proof of TDS compliance
• Consider applying for a lower TDS certificate if eligible
• Certificate from a Chartered Accountant may also be required while remitting funds outside India.

How NRIs Can Apply for a Lower TDS Certificate

NRIs can reduce their advance tax burden through a lower TDS certificate process:

• Submit Form 13 to the Assessing Officer for TDS relief / lower rate of TDS
• Provide supporting documentation showing the actual capital gains calculation for NRI property
• Demonstrate eligibility for property sale exemptions under sections 54, 54EC, or 54F
• Receive a Section 197 certificate specifying the lower TDS rate for NRI
• Provide this certificate to the buyer before completing the property transaction in India

NRIs can significantly reduce the upfront tax burden in cases where the actual tax liability is expected to be lower than the standard TDS rates, making purchase of property more tax efficient.

Claiming TDS Refund for NRIs

When TDS on Sale of Property by NRI exceeds actual tax liability, follow these steps for tax refund:

• File an income tax return in India declaring the property sale by NRI
• Calculate the actual tax liability on property sale considering eligible deductions
• Claim the excess TDS refund in the tax return
• Provide bank details for tax refund
• Follow up with the Indian tax department if necessary
• For official guidelines, refer to the Income Tax Department's page.
• In order to claim refund, proper documentation and timely filing of return is crucial.

Repatriation of Property Sale Proceeds for NRIs

After fulfilling TDS obligations on property sale, NRIs can repatriate funds from India following these FEMA regulations:

• Compliance with FEMA Regulations:
  • • Property Acquisition: Ensure that the property was acquired in accordance with FEMA provisions applicable at the time of purchase.
  • • Repatriation Limits: For residential properties, repatriation is restricted to the sale proceeds of up to two such properties.
• Tax Compliance:
  • Tax Deduction at Source (TDS): The buyer is required to deduct TDS under Section 195 of the Income Tax Act when making payment to the NRI.
• Documentation for Authorised Dealer Bank:
  • Application Form: Complete the 'Request for Outward Remittance from NRO Account’ form provided by SBI.
• Repatriation Limits:
  • Annual Cap: NRIs can remit up to USD 1 million per financial year (April to March) from their Non-Resident Ordinary (NRO) account, inclusive of all capital account transactions. Refer to the official NRI FAQs for more information.
• Foreign Exchange Conversion:
  • The remitted amount will be converted from Indian Rupees to the designated foreign currency at the prevailing exchange rate by SBI.
• Additional Considerations:
  • • Joint Accounts: If the NRO account is held jointly, ensure that all account holders are compliant with the repatriation requirements.
  • • Timeframe: Initiate the repatriation process promptly after the sale to comply with any time-bound regulations.

How NRIs Can Ensure Smooth Property Sale Transactions

• Plan: Understand the tax implications well before initiating the sale
• Consult Professionals: Engage tax consultants familiar with NRI property sale TDS regulations
• Document Everything: Maintain comprehensive records of the property purchase, improvements, and sale
• Apply for Lower TDS: If eligible, apply for a lower TDS certificate well in advance
• Verify Buyer Compliance: Ensure the buyer correctly deducts and deposits TDS
• File Tax Returns: Submit income tax returns in India to claim refunds and maintain compliance
• Stay Updated: Keep track of any changes in TDS rules for NRI property sale

Quick Tips to Obtain a Lower TDS Certificate (LDC)

• Apply Early: Submit Form 13 for LDC at least 30-45 days before the property transaction date
• Leverage Exemptions: Utilise Section 54/54EC/54F exemptions by investing in specified assets
• Document Improvements: Maintain receipts of all property improvements to increase cost of acquisition
• Calculate Accurately: Prepare a detailed capital gains computation showing your actual tax liability
• Consider Loan Repayments: Include outstanding home loan payments in your cost calculations
• Time Your Sale: Plan property sales across different financial years to manage tax brackets
• Leverage SBI's NRI Services: Utilise SBI's dedicated NRI relationship managers and authorised dealer services for seamless property transaction support and TDS compliance guidance

TDS Compliance: Hassle-Free Property Sales for NRIs

Navigating TDS compliance for NRI property sales requires thorough understanding of both procedural and regulatory requirements. SBI's comprehensive NRI services, including specialized relationship managers, authorized dealer facilities, and digital banking solutions, ensure smooth property transactions with proper TDS compliance. By planning early, maintaining proper documentation, and understanding repatriation norms, NRIs can avoid delays, reduce tax liability, and complete property transactions efficiently. Ready to explore SBI's NRI property transaction services? Contact SBI's NRI services team or visit your nearest SBI branch for personalised guidance on TDS compliance and property sale procedures.

Disclaimer: Tax laws are subject to periodic amendments by the Government of India. The information provided here is for general guidance only and should not be considered as professional tax advice. NRIs are strongly advised to consult with qualified tax professionals or chartered accountants familiar with current tax regulations before making investment decisions. Always verify the latest tax rates and compliance requirements with official sources or your financial advisor, as these may change from time to time.