WHENEVER A NON-RESIDENT Indian (NRI) sells a property, the buyer has to deduct tax on the gross sale consideration rather than on the actual taxable gains. However, there’s a way out to ensure that tax is withheld only on the real capital gains arising from the sale and not on the entire transaction value.
For this, an NRI has to make an application to the income tax department before the actual transaction for issue of a lower deduction certificate under Section 197 of the Income-Tax Act, 1961. This application has to be made in Form 13. The department will issue a certificate directing the buyer to deduct tax at source (TDS) only on the taxable portion of the capital gains, or at a reduced rate.
Sandeep Jhunjhunwala, partner, Nangia Andersen, says buyers deduct tax on the gross sale consideration rather than on the actual taxable gains in case of buying a property from an NRI. “This results in significant excess withholding, leading to cash-flow challenges for the seller who can claim refunds only after filing tax returns,” he says. The Lower Deduction Certificate thus makes the excessive tax deduction unnecessary.
ALSO READAdditional incentives likely for first-time women investors in mutual funds, says SEBI chief Filing returns
An NRI has to mandatorily report capital gains from the transfer of immovable property in India in income-tax return filings in Form ITR-2. Such gains must be disclosed in Schedule CG, with particulars of the transaction including the full value of consideration received, cost of acquisition, details of the transferee (name and PAN), and identification particulars of the property transferred.
Correct and complete disclosure is critical, as the TDS by the purchaser is mapped to the seller’s PAN and reconciled within the tax reporting system.
Calculating capital gains tax
When an NRI sells a residential property in India, the tax implications are determined based on the period for which the property was held. If the property is sold within 24 months of acquisition, the resulting gain is treated as short-term capital gain (STCG) and taxed at the applicable income tax slab rate for the individuals.
For properties held longer than 24 months, the gain qualifies as long-term capital gain (LTCG) and will be taxed at a flat rate of 12.5% plus surcharge and cess,
» Read More
