Checklist for NRIs planning to purchase property from another NRI

If you are planning to acquire any property or land in India from another NRI, the following checkpoints needs to be kept in mind from the perspective of the Indian Income Tax Law:

1. Buyer is responsible for deducting tax (TDS) at the time of payment of sale consideration to the NRI Seller. The question that arises is whether TDS is applicable on the entire sale value (as is applicable in case of a resident seller) or only on the capital gain portion. Here it is important to understand that TDS rate needs to be applied on the entire “sale value” as is applicable in case of a resident seller and not on the capital gain portion alone.

2. The TDS Rate to be applied on the sale value shall be as follows:

From the point of view of the NRI Seller, TDS is applicable on the sale value at the time of deducting TDS whereas tax is payable on the transaction on the capital gain portion alone at the time of filing Income Tax Return in India. Hence, the excess amount of TDS deducted by the Buyer can be claimed as refund by the NRI Seller when filing Income Tax Return in India.

Alternatively, the NRI Seller may be advised to apply for a Lower Deduction Certificate or “LDC” with the Income Tax Department requesting for a TDS rate lower than 20%. In this way, blockage of funds can be reduced while selling the property in India. However, in the absence of an LDC Certificate from the Income Tax Department, NRI Buyer must insist to deduct TDS at the rate of 20%/30% (as applicable) on the entire sale value, otherwise, the Buyer shall be solely responsible for all consequences resulting from short deduction of TDS.

3. For the purpose of remitting the TDS deducted from the sale consideration, buyers are mandatorily required to obtain a Tax Deduction Account Number or “TAN” through making an application to the Income Tax Department.

4. A TAN-based login will need to be created for the NRI Buyer on the portal of the Income Tax Department. This login can be used for remitting the TDS deducted from the Seller and also for filing the TDS Return.

5. TDS deducted needs to be deposited by the Buyer with the Government within 7 days from the end of the month in which TDS has been deducted using challan form ITNS 281. Please be informed that there is no option to give the details of the NRI Seller at the time of remitting TDS as is available in case of a Resident Seller.

6. The details of the NRI Seller and the TDS deducted need to be reported through filing a TDS Return in Form 27Q. The due date for filing TDS Returns is quarterly as follows: