Lower TDS on Sale of NRI

Property in India . . .

When NRIs sell property in India, the buyer must deduct TDS at a higher rate than what is applicable to local residents. The current TDS rate for NRIs is 23.92%, which includes a SC of 15% and a Cess of 4%. For instance, if an NRI sells property for 1 Crore Rupees, the TDS deducted by the buyer would be 23.92 lakhs. This is significantly higher compared to the 1% TDS rate applicable when the seller is a resident Indian. Applying for a Lower TDS Certificate Often, the TDS deducted at 23.92% is much higher than the actual tax liability of the NRI seller. To get relief, NRIs can apply for a lower TDS certificate from the Indian Income Tax Department. Application Process NRIs need to submit an online application using Form 13 through the TRACES website. What is TRACES? TRACES (TDS Reconciliation Analysis and Correction Enabling System) is an online platform by the Income Tax Department of India. It allows TDS payers and deductors to view and reconcile their TDS payments and helps in filing returns and seeking refunds. Steps to Use TRACES: 1. Register on the TRACES website. 2. Use a Digital Signature Certificate (DSC) for verification. 3. To obtain a DSC, visit an authorized certifying authority listed on the Ministry of Corporate Affairs website: Ministry of Corporate Affairs. NRIs and OCIs may find it easier to consult a chartered accountant in India to assist with obtaining a digital signature and completing the application process on TRACES. Is a NIL TDS Certificate an Option? A lower TDS certificate is sometimes referred by some people as a NIL TDS certificate, it is rare to get a zero TDS rate. Depending on the purchase and sale amounts, NRIs can request NIL TDS if they anticipate no tax liability after applying indexation to the purchase price of their property. However, due to stringent safeguards, a minimum deduction of 3-4% is generally expected even if you feel your calculations will result in zero capital gain. Some websites suggest that various improvements made to the property can be used to lower your capital gains. However, the tax department is very strict in this regard, and without significant upgrades supported by invoices, such claims are likely to be rejected. The commission paid to a real estate broker for selling your property can be claimed, but you must have receipts to verify the amount paid. It's always better to pay the selling agent by cheque to ensure proper documentation. Refund of Excess TDS If an NRI has excess TDS deducted, they can claim a refund by filing an Income Tax Return in India. However, this means the funds will be tied up with the Indian tax department until the refund is processed, which can take several months, resulting in a loss of use of the money and interest on it. Refunds by the tax department for NRIs are deposited directly in their NRO bank account. From the NRO account NRIs can transfer the funds to their NRE bank account or transfer the money abroad. For more information on transferring funds from NRO account check article titled ‘Transfer from NRO to NRE in two days’ Summary NRIs selling property in India face a high TDS rate of 23.92%. To mitigate this, they can apply for a lower TDS certificate through the TRACES website using Form 13. While a NIL TDS certificate is challenging to obtain, a lower TDS certificate option is available to NRIs. Consulting a chartered accountant can simplify the application process

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