TDS on Purchase Property from NRI - Section 195

TDS On Purchase Property From NRI - Section 195

When purchasing a property from NRI - TDS is required to be deducted on Capital Gains and not on Sale Price. The Procedure, TDS rate & Compliance are very different in case of purchase of property from NRI as compared to purchase of property from a Resident Indian and in this article.

It is important to mention here that based on the type of seller of the property the applicability of the TDS provisions changes and the same is explained hereunder –

1) Resident - Section 194-IA - TDS is to be deducted @1% only when consideration is more than INR 50 Lakhs

2) Non- Resident Indian - Section 195 - TDS Deductable as -

• Long Term Capital Gain - Property held for more than 2 years - 20%
• Short Term Capital Gain - Property held for less than 2 Years - as per the Income-tax Slab for the seller

The Indian resident purchasing a property from Non-resident Indian is required to deduct TDS as follows –

1. TDS is to be deducted by the buyer as per the provisions of Section 195.

2. However, the effective TDS rates in case of ‘Long Term Capital Gain’ is tabulated hereunder –

Particulars	Effective TDS rate
	Income is less than INR 50 Lakhs	Income is INR 50 Lakhs to INR 1 Crore	Income is more than INR 1 Crore
Long Term Capital Gain Tax Rate	20%	20%	20%
Add – Surcharge	0%	10% (on above rate)	15% (on above rate)
Total Tax including surcharge	20%	22% (20% + 2%)	23% (20% + 3%)
Add – Health and education cess	4%	4% (on above rate)	4% (on above rate)
Effective TDS Rates	20.80%	22.88%	23.92%

 3. There would be a Short Term Capital Gain in case the property is held for less than two years.

Deduction of TDS at Lower Rates –

The facility of a lower TDS rate is also available in case of a TDS deduction on the purchase of property from NRI. Following steps are to be followed for claiming the benefit of lower TDS rates –

1. The seller (i.e. NRI) is required to apply for a lower TDS deduction from the Jurisdictional Assessing Officer of Income Tax.

2. The Assessing Officer shall issue a certificate of lower TDS deduction within a period of 30 days.

3. Based on the certificate of lower TDS deduction, the buyer of the property is required to deduct such TDS as mentioned in the certificate.

Amount on which TDS is to be deducted –

The amount on which TDS is to be deducted in case of purchase of property from NRI depends on the following two situations –

1. When the certificate of computation of Capital Gain has been obtained from the Income Tax Officer.

2. When the certificate of computation of Capital Gain has not been obtained from the Income Tax Officer.

Time of deduction of TDS –

The buyer is obligatory to deduct the TDS within earlier of date of payment or date of credit of income. Meaning thereby that the buyer is required to deduct TDS also in case of an advance payment.

Time of deposit of the TDS with the Government –

The buyer is required to deposit the TDS so deducted to the Government within a period of 7 days from the end of the month in which the TDS has been deducted. The buyer is required to deposit the TDS through Challan No. ITNS 281.

TDS return –

The buyer is required to submit the TDS return in Form 27Q. The return is to be filed for all the quarters in which the TDS is deducted. 

TDS certificate –

The Deductor (i.e. the buyer) is required to issue a TDS certificate to the Deductee (i.e. seller) in Form 16A.