Lower TDS Certificate for NRI Property Sale (Section 197)

When a Non-Resident Indian sells property in India, the buyer is required to deduct tax at source before making payment to the seller. This deduction is made under
Section 195 of the Income Tax Act.

In many cases, the buyer deducts tax at a high rate (often around 20% plus surcharge and cess) on the sale consideration, even though the actual tax liability of the NRI seller may be much lower.

To avoid excess deduction of tax, the NRI seller can apply for a Lower TDS Certificate under
Section 197 of the Income Tax Act.
Once this certificate is issued by the Income Tax Department, the buyer can deduct tax at the lower rate specified in the certificate.

Our Chartered Accountants assist NRIs with the complete process of obtaining a lower deduction certificate for property transactions in India.

TDS on Property Sale by NRI in India

When property is purchased from a Non-Resident Indian, the buyer must deduct tax at source under Section 195 of the Income Tax Act. This requirement applies because the seller is a non-resident and the payment may be taxable in India.

The buyer usually deducts tax at a higher rate on the total sale consideration unless a lower deduction certificate is obtained from the Income Tax Department.

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TDS on Property Purchase from NRI

When property is purchased from a resident seller, TDS is normally deducted at 1% under Section 194-IA. However, when the seller is a Non-Resident Indian, the provisions of Section 195 apply.

Under these rules, the buyer must deduct tax at source before making payment to the NRI seller.

The deduction is generally made at a higher rate because the buyer may not know the exact capital gains tax liability of the seller. As a result, tax may be deducted at around 20% plus applicable surcharge and cess.

However, the actual tax payable by the NRI may be lower depending on the capital gains calculation.

Capital Gains Tax on NRI Property Sale

When an NRI sells property in India, the tax liability depends on whether the gain is classified as long-term capital gain or short-term capital gain.

In many cases, long-term capital gains on property are taxed at 12.5% (without indexation) under the current tax regime. Because of this difference between the actual tax liability and the tax deducted at source, NRIs often seek a lower deduction certificate.

TDS Obligations of Buyer Purchasing Property from NRI

When a property buyer purchases property from an NRI seller, the buyer becomes responsible for:

• deducting TDS under Section 195
• depositing the tax with the Income Tax Department
• filing TDS return
• issuing Form 16A to the seller

Failure to comply may attract interest and penalty.

Lower TDS Certificate under Section 197

Section 197 of the Income Tax Act allows taxpayers to apply for a certificate authorising deduction of tax at a lower rate or nil rate.

In property transactions involving NRIs, this certificate helps ensure that tax is deducted closer to the actual capital gains tax payable, rather than at a higher standard rate.

Once the certificate is issued by the Assessing Officer, the buyer deducts TDS according to the rate specified in the certificate.

How Our Chartered Accountants Assist

At N C Agrawal & Associates, we assist NRI clients with the complete process of obtaining a lower deduction certificate.

Our services include:

• calculation of capital gains from property sale
• determining the estimated tax liability
• preparation of application under Section 197
• submission of the application to the Income Tax Department
• follow-up with the assessing officer
• guidance to the buyer regarding TDS deduction as per certificate

Documents Required for Lower TDS Certificate

The following documents are generally required for the application:

• PAN of the NRI seller
• passport copy and NRI status proof
• property purchase documents
• proposed sale agreement or buyer details
• computation of capital gains
• previous income tax return details (if applicable)

Additional documents may be required depending on the specific case.

Process for Obtaining Lower TDS Certificate

The usual process involves the following steps:

1. Review of property transaction details
2. Calculation of capital gains and estimated tax liability
3. Preparation of application for lower deduction certificate
4. Submission to the Income Tax Department
5. Review by the Assessing Officer
6. Issue of lower TDS certificate specifying the reduced rate

The certificate is then provided to the buyer so that tax can be deducted at the rate authorised by the department.

Why Professional Assistance is Helpful

Applications for lower deduction certificates require accurate calculation of capital gains and submission of proper supporting documents. Incomplete applications or incorrect calculations may delay the process.

Professional assistance helps ensure that the application is prepared and submitted correctly and that the transaction complies with the applicable provisions of the Income Tax Act.

Assistance for NRI Property Transactions

Our Chartered Accountants assist Non-Resident Indians with:

• lower TDS certificate applications under Section 197
• capital gains tax calculation on property sale
• Form 15CA and Form 15CB certification
• income tax return filing for NRIs
• repatriation of funds from India

You may contact us for professional assistance regarding tax compliance for NRI property transactions.

Repatriation of Property Sale Proceeds by NRIs

After selling property in India, many NRIs wish to transfer the sale proceeds to their overseas bank accounts. Such remittances must comply with applicable regulations and banking procedures.

In many cases, banks require documentation such as tax computation and certification before allowing the funds to be remitted outside India.

NRIs may also be required to obtain Form 15CA and Form 15CB certification before the remittance of funds abroad.

Professional assistance can help ensure that the repatriation process complies with the applicable tax and regulatory requirements

Form 15CA and 15CB for NRI Property Sale

When sale proceeds are transferred outside India, certain remittance procedures must be followed. In many cases, Form 15CA and Form 15CB may be required before remittance through banks.

Our Chartered Accountants assist NRIs in obtaining Form 15CA and Form 15CB certification for property transactions.

Frequently Asked Questions

What is the TDS rate when property is purchased from an NRI?

When a property is purchased from a Non-Resident Indian, tax must be deducted at source under Section 195 of the Income Tax Act. The buyer usually deducts tax at around 12.5% or 20% plus applicable surcharge and cess on the sale consideration, unless a lower deduction certificate is obtained from the Income Tax Department.

Can an NRI apply for a lower TDS certificate for property sale?

Yes. An NRI seller can apply for a lower deduction certificate under Section 197 of the Income Tax Act. If the certificate is granted, the buyer can deduct tax at the lower rate specified in the certificate instead of the standard rate.

Who should apply for the lower TDS certificate in NRI property transactions?

The application for a lower deduction certificate is generally made by the NRI seller. The certificate issued by the Income Tax Department specifies the rate at which the buyer should deduct TDS on the payment made to the NRI seller.

Why is a lower TDS certificate useful for NRIs selling property?

Without a lower deduction certificate, the buyer may deduct tax at a higher rate on the full sale consideration. In many cases, the actual capital gains tax payable by the NRI may be significantly lower. A lower deduction certificate helps ensure that tax is deducted closer to the actual tax liability.

Is TDS deducted on the full property value or only on capital gains?

In many NRI property transactions, the buyer deducts tax on the entire sale consideration because the buyer may not know the exact capital gains amount. However, if a lower deduction certificate is obtained, TDS can be deducted at a reduced rate based on the estimated tax liability.

Are Form 15CA and Form 15CB required for NRI property transactions?

If the NRI seller wishes to remit the sale proceeds outside India, banks may require Form 15CA and Form 15CB certification before processing the remittance. These forms confirm that the applicable taxes have been paid in India.

How long does it take to obtain a lower TDS certificate?

The time required may vary depending on the assessing officer and the completeness of the application. In many cases, the certificate may be issued within a few weeks after submission of the required documents and tax computations.

What documents are required to apply for a lower TDS certificate?

Typical documents required include the seller’s PAN, passport copy, property purchase documents, proposed sale agreement, and a computation of capital gains. Additional documents may be requested by the Income Tax Department during the verification process.