Aug 26, 2023
Selling property in India by NRI’s are subject to TDS (Tax Deducted at Source) @20% plus surcharge and education cess on property sale amount. However, they can apply for a Lower Deduction Certificate to reduce the TDS rate if they believe that their actual tax liability is lower than the TDS rate.
The process involves a few steps:
Determine Eligibility: Ensure you meet the eligibility criteria for applying for a Lower Deduction Certificate. Generally, NRIs who have held the property for a long time and have a lower tax liability can apply. This is usually done if you believe that the TDS rate is higher than your actual tax liability.
Calculate Tax Liability: Calculate the actual tax liability on the capital gains from the property sale. This involves considering factors like the holding period, cost of acquisition, cost of improvements, and exemptions available.
Obtain a Tax Residency Certificate (TRC): Obtain a Tax Residency Certificate from the tax authorities in the country where you currently reside. This certificate helps in availing the benefits of Double Taxation Avoidance Agreements (DTAA) between India and that country.
Apply to the Assessing Officer (AO): Submit an application in form no-13 to the Assessing Officer of the Income Tax Department in India. The application should include details about the property, sale transaction, your calculation of tax liability, and reasons for requesting a lower TDS rate.
Supporting Documents: Attach supporting documents such as the Tax Residency Certificate, calculations of capital gains and tax liability, property sale agreement, PAN (Permanent Account Number), and any other documents required by the tax authorities.
Verification and Assessment: The Assessing Officer will review your application and documents. They may request additional information or clarification if needed. Once satisfied, they will issue a Lower Deduction Certificate specifying the reduced TDS rate.
Submit Certificate to Buyer: Provide a copy of the Lower Deduction Certificate to the buyer of the property. The buyer can then deduct TDS at the reduced rate specified in the certificate.
File Income Tax Return: After the property sale is complete and the TDS is deducted, you must file an income tax return in India to report the capital gains and the actual tax paid. This is essential to reconcile your tax liability and claim any excess TDS as a refund if applicable.
It is important to consult with a tax professional or legal advisor who is up-to-date with the latest regulations and requirements before proceeding with the application for a Lower Deduction Certificate.
We Jain Anurag & Associates, Chartered Accountants provide end to end services for NRI’s clients for tax implication on property transaction and assist to process the lower deduction certificate and subsequent income tax compliances advisory so avail the services kindly connect with our expert team.