I am planning to buy property in India

What are the tax aspects an NRI Property Buyer needs to keep in mind?

1. Upfront tax known as TDS (Tax Deducted at Source) will need to be deducted from the sale value before making payment to the Seller;
2. Rate of TDS to be applied will depend on the following factors:
   • Residential status of the Seller
   • Period of holding of the property by the Seller
   • Whether the Seller has applied for a Lower Deduction Certificate (LDC) or not
3. It is imperative to file an Income Tax Return in India in the year of purchase to avoid notices from the Tax Department in the future.
4. It is also advisable to file your tax returns in India declaring yourself as a Non-Resident at least for a year prior to the year in which the transaction is proposed to be entered to prove the foreign source of your income. Check out our article What should an NRI know about tax before buying property in India? which aims to highlight the importance of filing Income Tax Return in the aspect of future income tax notices.
5. Maintain proper documentation to prove the source of your funds for purchasing the property, especially bank statements.
6. In case improvements are planned to be undertaken on the property, maintain proper documentation such as agreement with vendor, vendor bills, bank statements for fund transfer to vendor, etc in order to be able to claim these amounts as costs later, if / when you decide to sell the property.

How is the TDS to be remitted to the Government?

In case of Resident Seller:

TDS can be remitted through Challan-cum-Return Form 26QB without the requirement to obtain TAN. Please check out our article on Checklist for NRIs planning to buy property from an Indian Resident for detailed information on TDS rates and manner of depositing TDS.

In case of Non-Resident Seller:

Tax Deduction Account Number (TAN) will need to be applied for remitting TDS in case of purchase of property from NRI Seller. Please check out our article on Checklist for NRIs planning to purchase property from another NRI for detailed information on TDS rates and manner of depositing TDS.

What is a Lower Deduction Certificate (LDC)?

The term “Lower Deduction Certificate” will be relevant if you are purchasing the land or house property in India from a Non-Resident Seller.

A Lower Deduction Certificate is a certificate issued by the Income Tax Department on behalf of the NRI Seller which allows the Buyer to deduct TDS at a rate lower than 12.5% / 20% / 30% TDS applicable on the transaction. The application for LDC is required to be made by the NRI Seller.

Hence, if your NRI Seller furnishes an LDC certificate, TDS may be deducted at the lower rate mentioned in the certificate.