Non Residents Services

Residential status in India

A resident is defined under Income Tax Act, 1961 and Foreign Exchange Act (FEMA, 1999). The residential status of an individual in India is based on the period of stay in India in a particular year. Residential status in India decides the tax filing for an NRI and Indian resident. NRI tax filing is not complicated as it looks, there are some exemptions and deductions but all together it is a simple process for NRIs.

If following conditions are satisfied, then an individual is said to be a citizen of India.

Condition as follows:

An individual stays within the country for 182 days or more in a particular financial year; OR

An individual is in India for 60 days in that year and has been there in the country for 365 days in any of the preceding 4 years.

NRI tax filing, totally depends on the residential status of the NRI.

  • In India, NRI’s whose income is earned or accrued in India is taxable. For example, Salary received in account (in India) or salary received for services provided in India, income from house property (situated in India), capital gains on transfer of asset(s) situated in India, income from fixed deposits or interest on savings bank account etc.
  • Income that is earned outside India is not taxable in India.
  • Interest earned on an NRE account and FCNR account is tax-free but Interest on NRO account is taxable for an NRI.

NRI tax filing is important and shall not be neglected by the NRIs

Any person (NRI or not), whose income exceeds Rs.2,50,000 is required to file an ITR in India.

NRI should file ITR when:

  • Want to claim a refund.
  • Have a loss that they want to carry forward.

Sale of Property by NRI

Whenever any property is purchased/sold, TDS is required to be deducted. The buyer when paying the amount to the seller will deduct some amount (technically called as TDS) and pay the balance to the seller. This amount which has been deducted by the buyer would then be required to be deposited with the Income Tax Department by the buyer.

The amount to be deducted would be depend on the residential status of the seller. In case the seller is a resident indian – the amount of TDS to be deducted would be 1% of Sale Price whereas in case the seller is a NRI – the amount of TDS to be deducted would depend on the quantum of money received by the seller.

The residential status of the buyer would not be considered and only the residential status of the seller would be considered for computing the amount of TDS to be deducted.

The manner and amount of deduction of TDS in case the seller is a Resident Indian has been explained in detail in here – TDS @ 1% on sale of property by Resident Indian.

TDS on Sale of Property by NRI is required to be deducted as per the rates mentioned below:-

Nature of Capital Gains Description TDS Rate on Sale of Property by NRI
Long Term Capital Gains Property held for more than 2 years 20%
Short Term Capital Gains Property held for less than 2 years Income Tax Slab Rates of Seller

Surcharge and Cess would also be levied on the above amount.

Therefore, the effective rate of TDS on sale of property by NRI in case of Long Term Capital Gains would be as follows:

Particulars Property Sale Price (Rs.)
Less than 50 Lakhs 50 Lakhs to 1 Crores 1 Crore to 2 Crores
Long Term Capital Gains Tax 20% 20% 20%
(Add) Surcharge Nil 10% of above 15% of above
Total Tax (incl Surcharge) 20% 22% 23%
(Add) Health & Ed. Cess

 

4% of above 4% of above 4% of above
Applicable TDS Rate
(incl. Surcharge & Cess)
20.8% 22.88% 23.92%

Particulars Property Sale Price (Rs.)
2 Crore to 5 Crores Above 5 Crores
Long Term Capital Gains Tax 20% 20%
(Add) Surcharge 25% of above 37% of above
Total Tax (incl Surcharge) 25% 27.4%
(Add) Health & Ed. Cess 4% of above 4% of above
Applicable TDS Rate
(incl. Surcharge & Cess)
26% 28.496%

In case of Short Term Capital Gains (i.e. if the Property has been held for less than 2 years by the seller), this Surcharge and Cess would be added to the applicable Tax Rate as per the Income Tax Slabs in the same manner as explained above for Long Term Capital Gains.

This TDS is required to be deducted whenever any payment is made to the NRI for purchase of property. Even if any advance is being paid for purchase of property – TDS is required to be deducted.

This TDS is required to be deposited by the buyer with the Income Tax Dept stating that this is the TDS which he has deducted from the payment made to NRI.

Moreover, this TDS on purchase of Property from NRI is required to be deducted irrespective of the Transaction Value of the Property. Even if the value of property is less than Rs. 50 Lakhs – this TDS is required to be deducted.

Lower Deduction Certificate

The TDS on sale of property by NRI is required to be deducted under Section 195 and is ideally required to be deducted on the Capital Gains. However, this computation of Capital Gains cannot be done by the Seller himself and should be done by the Income Tax Officer.

The seller shall file an application in Form 13 with the Income Tax Dept and request them to compute his Capital Gains. The procedure for filing of this form is a bit complicated and the seller can take the services of a chartered accountant for filing an application with the Income Tax Dept.

The Income Tax Department will compute the Capital Gains of the seller and will issue a certificate for Nil/ Lower deduction of TDS depending on the capital gains arising on the sale of property.

The seller is required to give this certificate to the buyer and the buyer will deduct the TDS as per the rates mentioned in the income tax certificate.

In case this certificate is not obtained by the seller from the Income Tax Department, the TDS should be deducted on the Total Sale Price and not on the Capital Gains. Therefore, it is very important for the seller to obtain this certificate from the Income Tax Officer

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