NRI Taxation India: Lower Tax Deduction Certificate | FAQs

Property sales in India are common transactions for NRIs and OCIs, but they often encounter income tax and other regulatory provisions. In such cases, they seek guidance from tax consultants. We provide assistance to NRIs, OCIs, and other foreign citizens in applying for Lower TDS Certificates online via Form 13, facilitating repatriation of funds (Form 15CA, 15CB, and bank communication), and various other services such as agreement reviews to ensure smooth property sale transactions.

On this page, we provide detailed explanations of Form 13 provisions and procedures for Lower TDS Certificates. 

Background

Under the withholding tax provisions of the Income Tax Act, different TDS rates apply to various transactions. In many cases, these rates exceed the actual tax liability of the taxpayer. Section 195 governs TDS provisions for Non-Residents (NRIs, OCIs), where TDS rates often surpass the actual tax liability, especially in property sale transactions. For instance, if an NRI sells property for Rs 2 Crore with an actual capital gain of only Rs 10 Lakh (which can be exempted using tax-saving mechanisms), the TDS rate prescribed by Section 195 is 23.92%, regardless of gain or loss.

CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services. We offer Lower Tax Deduction Certificate services to Non-Residents across major cities in India, including Delhi, Bangalore, Mumbai, Chennai, Kolkata, Kochi, Hyderabad, Chandigarh, Ludhiana, Noida, Gurgaon, Dehradun, Ahmedabad, etc.

Relief Mechanism

To seek relief from these high TDS rates, Non-Residents or their authorized representatives can apply for Nil or Lower Rate TDS Certificates under sections 195 and 197. This involves preparing and submitting an online application (Form 13) along with supporting documents.

Online Application Process

Non-Residents (NRI, OCI, PIO) must gather all necessary documents and submit an online application (Form 13) to the Income Tax Department. Here is the online application process:

• According to a notification by the Government of India (Ministry of Finance) dated October 25, 2018, all TDS Exemption/Lower TDS Certificate applications must be prepared and submitted online on the income tax portal.
• Initially, applicants must create an account on the TRACES website (www.tdscpc.gov.in) under the taxpayer category.
• Upon accessing the homepage, select "Request for Form 13" under the Statements/Forms tab.

We streamline the application process for Lower TDS Certificates, ensuring NRIs, OCIs, and PIOs can navigate regulatory requirements efficiently and effectively.

General FAQs for NRIs, OCIs, and PIOs – TDS Exemption Certificate, TDS Lower Certificate

What is the 1% TDS Rate Law in India regarding the Sale of Immovable Property? And does this apply to NRIs, PIOs? 

Answer: According to Section 194IA, if a person buys property from a Resident In India for Rs 50 Lakh or more, 1% TDS is applicable on the transaction. The buyer deducts TDS @1% from the payment made to the seller, depositing it with the Government of India. This law applies only if the property seller is a Resident In India. If the seller is a Non-Resident, including NRI, OCI, PIO, or other Non-Residents, section 195 applies, subject to maximum Income Tax rates.

Who is responsible for deducting TDS in property sale transactions?

Ans: The buyer is responsible for complying with all TDS provisions, regardless of whether the seller is a Resident or Non-Resident.

How does the buyer deposit TDS in the case of a sale by a Non-Resident Seller? How is the tax credit transferred to the seller?

Ans: Under Section 195, the buyer deducts TDS from the amount payable to the Non-Resident seller, depositing it with the Government. The buyer uses Challan 281 to deposit the tax, files e-TDS return (Form 27Q) with the Government, and includes the seller's PAN details. The tax is then credited to the seller's PAN, visible in their 26AS statement. The seller can claim this credit in their Income Tax Return.

CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services. 

What is Form 13, and what is its purpose?

Ans: Form 13 is the Application form for applying for a Lower or NIL Rate TDS Certificate or TDS Exemption Certificate under Income Tax Rules.

What documents and information are needed for preparing and filing Form 13 for Lower TDS Certificate or TDS Exemption Certificate?

Ans: The general checklist for NRIs, PIOs, OCIs includes PAN Card Copy, Income Tax and TRACES Login details, Passport Copy, Passport pages reflecting India entry/exit dates, ITR Copies of past 2 years, Bank statement, PAN and Aadhar of Buyer, 26AS of current and past 2 years, TDS Account Number of proposed TDS Deductor, Computation of Capital Gain, Transaction-related documents, and any other required documents.

Is the lower rate TDS given by the AO inclusive of all taxes?

Ans: The lower rate TDS rate approved by the AO generally excludes education cess and applicable surcharge. The buyer must deduct Education Cess and Surcharge separately, as applicable.

What responsibilities does the seller have regarding TDS during and after the sale of property?

Ans: The seller must ensure that the TDS deduction made by the buyer aligns with the Lower TDS Certificate. After the sale, the seller should verify that the buyer files a TDS Return (Form 27A) and connects the TDS with the seller's PAN. The seller should also receive Form 16A (TDS Certificate) from the buyer.

Is there a validity period for Lower TDS Certificates? Can they be used with a new Buyer if a sale transaction fails?

Ans: Lower TDS Certificates are valid for the respective Financial Year, starting from the date of issue until the end of the financial year. If a sale agreement is canceled, the certificate cannot be used with a new buyer. A fresh certificate must be obtained against the new buyer's TAN.

CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services.