• Buying a resale flat from person residing in US

Hello Sir,

I am considering buying a resale property from a person who is residing in US for more than an year now. His property related all documents seems to be alright. I am concerned about the tax implications from TDS prospective. As I understand TDS for NRI stands at more than 20%. I have been suggested that to get the owner travelled to India and if he can present in person, the TDS would be 1%. Can there be any way by which we can avoid this 20% TDS tax implication legally? Please advise.
Asked 7 years ago in Property Law
Religion: Hindu

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4 Answers

1) As per the Indian Income Tax Act, when a resident purchases any property from a non resident, he has to deduct income tax (TDS) and pay the balance amount to the seller.

2)purchaser has to deduct 20% of the sale consideration as tax,

3) as per section 195 of IT Act, the person who is paying any sum to a non resident is responsible for deducting tax before making payment or crediting the payment in his account. So, the buyer of the property is responsible for deducting tax.

4)you or the seller can make an application to Income Tax Officer, working out the tax on capital gain and seek a certificate from him for lower deduction or Nil deduction of tax;

5) in case NRI seller is willing to re-invest capital gain to save capital gain tax: In this case, NRI Seller can apply for Tax Exemption Certificate.

Ajay Sethi
Advocate, Mumbai
95168 Answers
7604 Consultations

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As a buyer what is your concern about TDS.

You have deduct the requisite amount from the sale consideration amount towards TDS and deposit the same to the government in the form as prescribed in the rules envisaged for this purpose.

It is the vendor who has to worry about the amount of TDS for remaining outside India during the sale transaction.

You may inform the vendor about this vast difference and ask him to consent for either way to enable the execution of registered sale deed in the maner as prescribed in law.

T Kalaiselvan
Advocate, Vellore
85369 Answers
2231 Consultations

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1. When was the said property purchased? During his stay in India or when he was abroad?

2. Was the flat been purchased by him from his NRE account?

3. If he is a NRI and the said property was purchased from his NRE account then you shall have to deduct TDS @ 20% of the price of the flat.

4. If you fail to deduct the said TDS, you shall be liable to be punished with jail term.

5. Your idea that if he is present in India to sign the sale deed then the bTDS to be deducted will be 1% may not be correct.

6. If his staus is NRI and he has purchased the said property from his NRE account, then you shall have to deduct 20% as TDS from the said sale amount.

Krishna Kishore Ganguly
Advocate, Kolkata
27245 Answers
726 Consultations

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1) The best possible legal way is that Prior to execution of sale deed, the NRI Seller should apply to the Income Tax Officer for either of the following certificates:

a) Tax Exemption Certificate


b) Apply for Lower Tax Deduction Certificate by declaring capital gains prior to the sale

Let me explain how the NRI seller can obtain any of the above Certificates with an Example

I) Before the NRI decides to go ahead with property sale following 2 points should be considered

a) Type of Capital Gain from Property Sale i.e. Short Term Capital Gain or Long Term Capital Gain (Whether holding period is more than 2 years(Long term capital gain) or less than 2 years(Short term capital gain

b) Whether the NRI is willing to pay capital gain tax or would like to save capital gain tax by Re-investment of capital gains

II ) Once the above 2 points are clear then we are ready for property sale in India.

III) Let’s discuss the case of NRI who lives abroad .

a) NRI has property in Mumbai which he bought in Aug, 2009 for 70 lakhs.

b) NRI is planning to sell it in current FY 2017-18for 1.5 Cr.

Now in his case, the answer to your query are

1) Capital Gain will be Long Term Capital Gain as NRI held the property for more than 24 months. Rate of Capital Gain Tax for Long Term Capital Gain is 22.66%

2) NRI is inclined to save capital gain tax by re-investment of capital gains

3) Therefore 1st task is to calculate long term capital gain of NRI

4) Indexed cost of acquisition of property is approx 1.13 Cr and he is selling it for 1.5 Cr.

5) Long Term Capital Gain from property sale is approx 37 lakhs and corresponding Long Term Capital Gain Tax at 22.66% is 8.38 Lakh.

6) As in this case, the seller will deduct TDS at 20.66% under section 195 on sale consideration value (i.e. 1.5 Cr) . Tax Deduction at Source = (20.66/100)*(1.5crore)= Rs 31 Lakh WHEREAS NRI'S LONG TERM CAPITAL GAIN IS ONLY is only 8.38 Lakh.

So in this context, there are 2 possible scenarios

Scenario 1:

(a) NRI Seller is willing to pay Actual Capital Gain Tax

(b)In above example, NRI can apply for Lower Tax Deduction Certificate as actual long term capital gain tax liability is only 8.38 lakh against TDS of 31 lakh u/s 195.

Scenario 2:

(a) NRI seller is willing to re-invest capital gain to save capital gain tax: In this case, NRI Seller can apply for Tax Exemption Certificate.

Hope this information is useful.

Rajgopalan Sripathi
Advocate, Hyderabad
2173 Answers
394 Consultations

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