Tax Deducted at Source is the first way of collecting taxes.

Section 195 of the

Income Tax Act is a section that covers the TDS on Non-resident payments.
This section identifies the tax rates and deductions on business transaction with
a non-resident from a day –to-day basis.

Under Section 195, the income is chargeable under Income Tax Act. Any sum
is charged and the certificate for remittance is mandatory.
Any sum chargeable to tax is the amount that is paid which bears the character
of income and gross amount, the whole of which may or may not represent
income or profits.
The Act lays out a provision to avoid a revenue loss as a result of tax liability in
the hands of a foreign resident, by deducting the same amount from payments
made to them at source.
Payer is the person who is remitting the payment to a non-resident payee. The
payer can be individuals, Hindu Undivided Family, firms, non-residents, foreign
companies, persons having exempt income in India and any juristic person
irrespective of whether that person has income chargeable to tax in India or not.
Payee is a non-resident whose residential status is as per Section 6 of the Act.
TDS under section 195:
The following are the ways to be followed to deduct TDS under Section 195:
 TAN (Tax Deduction Account Number): Buyer should first obtain TAN
under section 203A of the Income Tax Act, 1961 before deducting TDS. TAN
can be obtained by applying buy filling up the Form 49B. This form is also
available online. Buyer should also have his own PAN number and PAN
number of the NRI seller.
 TDS must be deducted at the time of making the payment to the NRI. The
information about the TDS being deducted and the rate at which it was
deducted should be mentioned in the sale deed between the NRI seller and the
buyer.
 The TDS deducted by the buyer should be deposited through Form number or
challan for TDS payment on or before the 7th of next month in which the TDS
is deducted.
 The TDS can be deposited through banks that are authorised by government
of India or the Income Tax Department to collect Direct Taxes. The deposit
has to be made by the buyer.
 After the TDS has been deposited, the buyer has to electronically file TDS
return by submitting Form 27Q. TDS returns are filed quarterly. TDS
deducted during the first quarter from 1st April to 30th June must be filed on
15th July. TDS deducted during the second quarter from 1st July to
 30th September must be filed on 15th October. TDS deducted during the third
quarter from 1st October to 31st December must be filed on 15thJanuary. TDS
deducted during the fourth quarter from 1st January to 31st March must be
filed on 15th May.
 After the TDS returns have been filed, buyer can issue TDS certificate or
Certificate of Deduction of Tax which is Form 16A to NRI seller. This
certificate should be issued to the seller within 15 days from the due date of
TDS returns for the quarter.

REPATRIATION OF MONEY

The word Repatriate means to send someone/something back to their/it’s home

country. We often hear NRIs fussing over ways and the extent to which they
can repatriate their Indian income from the property. There is a fair amount of
confusion around the tax treatment to be given to property owned by NRIs in
India.
Thus, for clear understanding, one must be able to identify a ‘non-resident
Indian’ status. A non-resident Indian (NRI) is a citizen of India who holds an
Indian Passport and has temporarily emigrated to another country for 6 months
or more for employment, residence, education or any other purposes. To be
precise, he/she must stay outside India for more than 182 days during the
preceding financial year, between April 1st to March 31. For an NRI, income
earned/collected in India exceeding rupees 250000 (excluding income taxable at
a special rate like capital gain) is chargeable to tax in India.

Tax Implications on Property

NRIs tend to invest money in real estate in India. However, not all of them are
aware of the tax implication of their properties in India.
Property income in India may be from two types of sources. Either by renting
out the property or selling it off.
Rental Income

Income tax on Rent received by NRIs is taxable under the head House
Property and is levied the same way as it is for Resident Indian.
1. Out of the total rent received by the NRI, Municipal taxes are first allowed
to be reduced.
2. After that, from the balance amount – 30% is allowed as standard deduction
and deduction for interest paid on home loan is allowed.
3. In case if NRI owns more than one property but neither let out nor is used
for residential purposes, then one can be claimed as self-occupied but
notional rent is calculated, and tax is applicable on that the remaining
properties.
Capital Gains

Capital gains to the NRIs will be either short term or long term based on the
period of holding of the asset (property). In the case of capital gains, the cost of
the property is the cost to the previous owner.
1. When the asset is sold off within 2 years (from budget 2017-2018) of
purchase, it is classified as short-term capital gains and chargeable to tax as
per income tax slabs applicable to NRIs.
2. When the asset (other than immovable property and shares) is sold off after
completing a period of 3 years, it is classified as long-term capital gains and
is taxed at 20% plus cess and surcharge after indexation. In case of
immovable property, it is treated as long-term if it is held for more than 2
years.
Tax Exemptions

NRIs also enjoy exemptions on their capital gain income from the sale of the
property. Following are the tax exemptions available to an NRI:
1. Section 54 – Under this section, if NRI sells a residential property after two
years from the date of purchase and reinvests the proceeds into another
residential property within two/three years from the date of sale, the profit
generated is exempt to the extent of the cost of new property. However,
NRIs cannot invest the proceeds on the sale of property in India in foreign
property and still avail the benefit of section 54. The exemption shall be
limited to the total capital gain on sale. The property may be purchased one
year before the sale or two years after the sale, in case of construction the
period becomes three years.
2. Section 54EC – If an NRI sells off a long-term asset, i.e. a residential
property and invests the number of capital gains in bonds of NHAI and
REC within six months from the date of sale, he/she will be exempt from
capital gains tax. These are redeemable after five (earlier the lock-in was for
3 years) years. A period of six months is allowed to invest in these bonds.
The NRI must show proofs to these investments to the Buyer to make sure
TDS doesn’t get deducted.
3. Section 80C – if the home loan has been taken then NRIs are eligible
under section 80C for repayments of the principal amount of the loan.
 Stamp duty and registration charges paid on purchases of property can also
be claimed u/s 80C. Deduction towards property tax paid and interest on
home loan deduction is also allowed to be deducted u/s 24(b).
TDS Implications

As per the income tax act, when a payment is made to NRIs, TDS must be
deducted at the applicable rate depending on the nature of income. So, when an
NRI sells a property following TDS is applicable in case of sale of property by
NRI, if the capital gain is long-term, the buyer must deduct a TDS of 20% on
the sale price of the property. Similarly, in case of short-term capital gains, TDS
at the rate of 30% is deducted. The TDS chargeable to NRIs is higher than that
chargeable to resident Indians. In case the income amount exceeds the
prescribed limit (50/100 lakhs) surcharge also needs to be collected. The
deducted taxes are to be paid to the Income Tax Department along with a duly
filled Challan 26QB.
Repatriation

The bank with which the NRI deals will allow for repatriation of income from
immovable property subject to a few conditions.
1. Money that was bought from outside for the purchase of property can be
repatriated. However, sale proceeds of only two residential properties can
be repatriated.
2. Where the NRI has taken a home loan to purchase house property, the bank
will allow him/her to repatriate an amount equivalent to what he brought in
from abroad to pay back the loan.
3. If the property was acquired out of NRIs rupees resources or the loan was
paid by the relatives of NRI in India, the sale proceeds are credited into the
NRI’s Non-Resident ordinary account.
4. Repatriation will be allowed subject to furnishing of Form 15CA and Form
15CB (CA’s certificate)
In the case of property owned by NRI in India, the tax implications and
exemption are similar to those of a resident Indian. However, the NRI must
produce all the documents for claiming deductions. An NRI must make an
informed decision to avail of all the benefits available to NRIs.
If you still haven’t filed your Income Tax Return, you are at the right place. File
your IT returns with H&R Block to experience effective and hassle-free tax
filing. Our tax experts will file your return for you while you sit back and
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Tax Implications for NRIs Who Want to Sell Property in India

Updated on Jul 20, 2018 - 03:40:00 PM

There is a fair amount of confusion about tax implication for NRIs who want to
sell any house property that they may have in India. This article explores how
much tax is payable and TDS deductible in case of NRIs who want to sell
property in India.
NRIs who are selling house property which is situated in India have to pay tax
on the Capital Gains. The tax that is payable on the gains depends on whether
it’s a short term or a long term capital gains.
When a house property is sold, after a period of 2 years (Reduced from 3
years to 2 years in Budget 2017) from the date it was owned – there is a long
term capital gain. In case it held for 2 years or less – there is a short term capital
gain.
Tax implications for NRIs are also applicable in the case of inheritance. In case
the property has been inherited, remember to consider the date of purchase of
the original owner for calculating whether it’s a long term or a short term capital
gain. In such a case the cost of the property shall be the cost to the previous
owner.

How much tax is payable?

Long term capital gains are taxed at 20% and short term gains shall be taxed at
the applicable income tax slab rates for the NRI based on the total income
which is taxable in India for the NRI.

TDS Deductible
When an NRI sells property, the buyer is liable to deduct TDS @ 20%. In case
the property has been sold before 2 years(reduced from the date of purchase) a
TDS of 30% shall be applicable.

How to save tax on capital gains?

NRIs are allowed to claim exemptions under section 54 and Section 54EC on
long term capital gains from sale of house property in India.

Exemption under Section 54

It is available when there is a long term capital gain on sale of a house property
of the NRI. The house property may be self occupied or let out. Please note –
you do not have to invest the entire sale receipt, but the amount of capital gains.
Of course, your purchase price of the new property may be higher than the
amount of capital gains.
However, your exemption shall be limited to the total capital gain on sale. Also,
you can purchase this property either one year before the sale or 2 years after
the sale of your property. You are also allowed to invest the gains in the
construction of a property, but construction must be completed within 3 years
from the date of sale.
In the Budget for 2014-15, it has been clarified that only ONE house property
can be purchased or constructed from the capital gains to claim this exemption.
Also starting assessment year 2015-16 (or financial year 2014-15) it is
mandatory that this new house property must be situated in India. The
exemption under section 54 shall not be available for properties bought or
constructed outside India to claim this exemption. (Do remember that this
exemption can be taken back if you sell this new property within 3 years of its
purchase).
If you have not been able to invest your capital gains until the date of filing of
return (usually 31st July) of the financial year in which you have sold your
property, you are allowed to deposit your gains in a PSU bank or other banks as
per the Capital Gains Account Scheme, 1988. And in your return claim this as
an exemption from your capital gains, you don’t have to pay tax on it.

Exemption under section 54F

It is available when there is a long term capital gain on the sale of any capital
asset other than a residential house property. To claim this exemption, the NRI
has to purchase one house property, within one year before the date of transfer
or 2 years after the date of transfer or construct one house property within 3
years after the date of transfer of the capital asset. This new house property
must be situated in India and should not be sold within 3 years of its purchase or
construction.
Also, the NRI should not own more than one house property (besides the new
house) and nor should the NRI purchase within a period of 2 years or construct
within a period of 3 years any other residential house. Here the entire sale
receipts are required to be invested. If the entire sale receipts are invested then
the capital gains are fully exempt otherwise the exemption is allowed
proportionately.

Exemption is also available under Section 54 EC

If you can save the tax on your long term capital gains by investing them in
certain bonds. Bonds issued by the National Highway Authority of India
(NHAI) or Rural Electrification Corporation (REC) have been specified for this
purpose. These are redeemable after 3 years and must not be sold before the
lapse of 3 years from the date of sale of the house property. Note that you
cannot claim this investment under any other deduction. You are allowed a
period of 6 months to invest in these bonds – though to be able to claim this
exemption, you will have to invest before the return filing date. The Budget for
2014 has specified that you are allowed to invest a maximum of Rs 50 lakhs in a
financial year in these bonds.
The NRI must make these investments and show relevant proofs to the Buyer –
to make sure TDS is not deducted on the capital gains. The NRI can also claim
excess TDS deducted at the time of return filing and claim a refund.