What is the TDS rate for purchasing property from an NRI after 23 July 2024?
-Name withheld on request
If you purchase immovable property from a non-resident Indian (NRI) after 23 July 2024, the applicable TDS rate depends on the duration the seller held the property:
For property held more than 2 years: TDS is deducted at 12.5% (plus surcharge and cess).
For property held 2 years or less: TDS is deducted at 30% (plus surcharge and cess).
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TDS should be calculated on the capital gains amount if you can accurately determine it, not on the full sale consideration. However, if capital gains cannot be substantiated with documentation, tax should be deducted on the entire sale value. Valid documents to support the capital gains calculation may include the original purchase agreement, stamp duty valuation (if purchased before 1 April 2001), and receipts for expenses related to the sale.
As the buyer, you hold the primary responsibility for collecting tax from the NRI seller. If there is any TDS shortfall, tax authorities may recover the difference from you. Therefore, it is advisable to either request the seller to obtain a lower withholding tax certificate from tax authorities or to deduct tax on the entire sale consideration if you are uncertain about the capital gains amount or lack supporting documentation.
When TDS is calculated on capital gains, note that long-term capital gains for non-residents are computed without the benefit of cost indexation. Unlike resident individuals or HUFs, NRIs are not eligible for the option of a 20% tax rate with indexation or 12.5% without it.
Additionally, while tax treaties are sometimes considered in transactions with non-residents, most treaties do not offer relief on the sale of immovable property located in India. Furthermore, NRIs do not have the benefit of calculating gains in foreign exchange for such transactions.
Mahesh Nayak, chartered accountant, CNK & Associates.
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