Understanding the Lower TDS Deduction Certificate for NRIs
Selling property in India as a Non-Resident Indian (NRI) or an Overseas Citizen of India (OCI) involves several tax and legal considerations. One crucial aspect is the Tax Deducted at Source (TDS), which is deducted from the sale proceeds before payment is made to the seller. To mitigate high withholding tax rates and ensure liquidity, NRIs can apply for a Lower TDS Deduction Certificate or Nil TDS Deduction Certificate (Form 13) from the Income Tax Department. This certificate helps in reducing the upfront tax deduction and prevents excessive funds from being locked with the authorities.
A Lower TDS Deduction Certificate provides NRIs with financial relief, faster transactions, and greater control over tax payments. Jitesh Telisara and Associates LLP, a trusted NRI Tax Consultant and CA firm in Pune, specializes in assisting NRIs with the application process of lower TDS deduction certificate/ NIL TDS Deduction Certificate (Form 13) , ensuring compliance with tax laws and simplifying the procedure for a hassle-free experience.
TDS Rates on Property Sales by NRIs
Under the Indian Income Tax Act, the applicable TDS rate depends on the residential status of the seller:
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- Resident Indian Sellers: A standard TDS of 1% is applied under Section 194-IA.
- Non-Resident Sellers: Governed by Section 195, NRIs are subject to higher TDS rates:
- Long-term capital gains (LTCG): If the property has been held for over two years, the applicable TDS rate is 12.5% (without indexation) for transfers occurring on or after July 23, 2024.
- Short-term capital gains (STCG): If the property is held for less than two years, the applicable TDS is determined as per the applicable income tax slab rates.
Additional charges such as surcharge and 4% cess apply to the total tax liability, affecting the final tax liability.
What is a Lower TDS Deduction Certificate?
In many cases, the actual tax liability of an NRI seller is lower than the mandated TDS rate. To avoid unnecessary deductions and financial strain, the Income Tax Act allows NRIs to apply for a Lower TDS Deduction Certificate or Nil TDS Certificate under Section 197.
NRIs can submit Form 13 online to the jurisdictional Income Tax Authority, along with necessary supporting documents. Upon approval, the buyer is required to deduct TDS at the rate specified in the certificate (excluding surcharge and education cess which is in addition to TDS rate provided), ensuring tax efficiency for the seller.
Essential Documents for Lower TDS Certificate Application
The required documents/information for making an application for Lower TDS deduction Certificate
- Income Tax login details of the NRI
- Registration on the TRACES portal (for online Form 13 submission)
- Draft Agreement to sell the property
- Buyer’s TAN (Tax Deduction Account Number) and TAN letter
- Copy of the NRI’s passport
- Circle rate/Stamp duty valuation report of the property
- Sale deed or builder’s agreement related to property acquisition
- Seller last 3 years Income Tax Return filed copies along with computation
- Buyer and seller KYC documents
Validity and Issuance of Lower TDS Certificate
The validity of a Lower TDS Deduction Certificate begins from the date of approval of an application by assessing officer and remains effective until the end of the financial year in which application is made. The certificate is issued at the discretion of the Assessing Officer, and if cancelled before expiry, it becomes invalid. It is important to note that these certificates are applicable only for the specified financial year and cannot be carried forward to subsequent years.
Who Receives the Lower TDS Certificate?
The certificate is issued by the Income Tax Department and addressed to the property buyer, who is responsible for deducting TDS at the revised rate. If a Nil TDS Certificate is granted, the buyer is not required to deduct TDS at all. The NRI seller must ensure that the buyer receives and adheres to the certificate terms.
When to Apply for a Lower TDS Certificate?
Although there is no fixed deadline under the Income Tax Act, it is advisable to apply at least 30-40 days before the sale transaction. This allows sufficient time for processing and verification. Typically, professional tax consultants take around 15-20 days to complete the formalities and secure the certificate.
Advantages of a Lower TDS Certificate
- Reduced Tax Burden: NRIs can significantly lower their tax liability, sometimes down to 0%, depending on eligibility.
- Time and Cost Efficiency: Eliminates the need for complex refund claims and saves on professional fees for reclaiming excess TDS.
- Regulatory Compliance: Ensures adherence to Indian tax laws, avoiding penalties and legal issues.
