“How to Obtain a Lower TDS Certificate for NRIs on Property Sale”, is a frequently asked question by NRIs and OCIs wanting to sell their property in India.

When Non-Resident Indians (NRIs) or Overseas Citizens of India (OCIs) sell property in India, they are required to pay tax on the gains. The Indian Income Tax Act, 1961 mandates a deduction of Tax Deducted at Source (TDS) under Section 195, which ensures that tax liabilities are settled at the time of the transaction. However, this TDS is often deducted at a high rate, causing a financial burden for the seller. To mitigate this, NRIs can apply for a Lower TDS Certificate using Form 13, reducing the TDS deduction at the source. This guide provides a detailed overview of how NRIs can lower their TDS liabilities while selling property in India.

Understanding TDS for NRIs Selling Property in India

Under Indian tax laws, TDS is deducted when any income is paid to a non-resident, including income from property sale. The applicable TDS rates differ based on whether the property qualifies as a long-term or short-term capital asset:

1. Long-Term Capital Gains: If the property is held for more than 2 years, a TDS rate of 20% or higher applies for NRIs and OCIs.
2. Short-Term Capital Gains: If the property is held for less than 2 years, the applicable tax is based on the income tax slab rates for the seller​.

In both cases, surcharges and health & education cess are also added, increasing the effective tax rate to 20.8% for properties sold under Rs. 50 lakhs, 22.88% for properties between Rs. 50 lakhs and Rs. 1 crore, and 23.92% for properties sold for over Rs. 1 crore.

TDS Rates for NRIs Selling Property

The TDS rate depends on whether the property qualifies as a long-term or short-term capital asset. Here’s a quick breakdown:

Additional surcharges and health & education cess also apply:

• 10% surcharge for properties sold between ₹50 lakh to ₹1 crore.
• 15% surcharge for properties sold over ₹1 crore​

What is a Lower TDS Certificate?

A Lower TDS Certificate allows NRIs to reduce the percentage of tax deducted at the time of the property sale. Instead of being charged the full rate (up to 23.92% on long-term capital gains), an NRI can apply for a reduced or nil TDS certificate based on their actual taxable income.

Why Apply for a Lower TDS Certificate?

In many cases, the actual tax liability for an NRI is much lower than the TDS deducted. Without a lower deduction certificate, NRIs may face:

• Blocked Funds: The excess TDS deducted is held with the Income Tax Department until a refund is processed, which could take time​.
• Interest Loss: Blocking a large sum of money with the tax authorities could result in significant interest losses​(3).

By applying for a Lower TDS Certificate, NRIs can reduce or eliminate the TDS amount deducted, avoiding these issues and streamlining the tax process.

Steps to Apply for a Lower TDS Certificate Using Form 13

To obtain a lower or nil TDS deduction, NRIs must apply to the Indian Income Tax Department using Form 13. Below is a step-by-step guide to filing the application:

Step-by-Step Process:

1. Login to TRACES Portal: Access the TRACES portal and log in to the portal using your credentials.
2. Submit Form 13: Navigate to the “Statements/Forms” section and request Form 13 and set the type as “Original”. Choose your residential status as “Non-Resident.”
3. Provide Details:
   1. Enter details about your property sale.
   1. Provide your TAN, and the buyer’s TAN.
   1. Upload financial documents including income details for the current and previous financial years.
   1. Include documents such as the projected income, tax liability for the current year, and details from the last four years.
   1. Upload supporting documentation, including PAN, past income tax returns, and property details.
4. Verification: As per recent amendments, the application must be verified using a Digital Signature Certificate (DSC).
5. Await Review and Issuance: The Assessing Officer (AO) will review the application and, if approved, issue the lower TDS certificate.

What Happens After the Application?

After applying for a lower TDS certificate:

1. Review by Assessing Officer: The TDS Assessing Officer reviews the application and checks the documents. Based on the evaluation, a decision is made on whether to approve or reject the application​.
2. Certificate Issuance: If approved, the certificate is issued specifying the lower TDS rate. This certificate is valid for one financial year or a specific transaction, whichever is applicable​.
3. Usage of the Certificate: The buyer of the property is responsible for applying the lower TDS rate based on the certificate provided by the seller. If the certificate is not used, the full TDS amount must be deducted​.

Required Documents for Applying for a Lower TDS Certificate

NRIs must provide a series of documents to support their application for a lower TDS certificate. Here’s a checklist of the necessary paperwork:

Having these documents ready helps streamline the application process and ensures that the assessing officer has all the necessary information​.

Timeline and Validity of the Lower TDS Certificate

The issuance process for a Lower TDS Certificate typically takes 15-45 days, depending on the complexity of the case and the speed of the Assessing Officer’s review. Once issued, the certificate remains valid for the current financial year or for a specific transaction as mentioned on the certificate​.

Processing Timeline:

Consequences of Not Applying for a Lower TDS Certificate

If the NRI seller does not apply for a Lower TDS Certificate, the buyer must deduct TDS at the standard rates from the total sale price, not just the capital gains​. This could result in:

• Excessive Deduction: The TDS may exceed the actual tax liability, blocking a significant portion of the sale proceeds.
• Lengthy Refund Process: While NRIs can claim a refund of the excess TDS, the process is often time-consuming​.

TDS Deduction with and without Lower TDS Certificate

Let’s look at a hypothetical scenario to understand the impact of applying for a lower TDS certificate.

Scenario: Property Sale by NRI

Without a lower TDS certificate, the full tax deduction would be based on the sale amount, leading to an excess deduction of ₹29.12 lakhs. However, with the certificate, the TDS is calculated only on the capital gains of ₹40 lakhs.

Compliance for Buyers Purchasing Property from NRIs

When purchasing property from an NRI, the buyer also has specific responsibilities to ensure compliance with tax laws:

1. TAN Number: The buyer must have a TAN number to deduct TDS. TAN is required only when the seller is an NRI. The TAN can be applied for through Form 49B​.
2. Deduction of TDS: The buyer is responsible for deducting TDS at the time of every payment, including advance payments​.
3. Deposit of TDS: The deducted TDS must be deposited with the Income Tax Department within 7 days of the end of the month in which the deduction was made.
4. Filing of TDS Return: After deducting TDS, the buyer must file the TDS return (Form 27Q) within 31 days of the quarter in which the deduction was made​ and a Form 16A (TDS certificate) must be issued to the seller​.

Interpretation of Lower TDS Certificate for NRIs on Property Sale

Selling property as an NRI in India can be a complex process due to the high TDS rates. Applying for a lower TDS certificate can help NRIs save on unnecessary tax deductions, freeing up funds and avoiding lengthy refund processes. By following the steps outlined in this guide and ensuring compliance with Indian tax laws, NRIs can avoid the hassle of excessive deductions and lengthy refund processes. For NRIs, seeking professional assistance from a chartered accountant can further simplify the process, ensuring that all documents are filed correctly and on time.

For more information and guidance on how to obtain a lower TDS certificate for NRIs on property sale, click here.