NRI Real Estate Investment

NRI Investment In Real Estate | NRI Property Investment | NRI Real Estate Investment Guide 

NRI Real Estate Management Services

·         NRI Buying Property In INDIA

·         NRI Selling Property In INDIA

·         NRI Income Tax services

·         NRI Investment Advisory Services

TIPS FOR NRI While Buying / Selling Properties In India

Unlike resident Indian, properties purchased from a non-resident Indian will be subject to TDS at prescribed rate.

As per section 195 of Income Tax Act,“any person responsible for paying to a Non-Resident, not being a company or to a foreign company, of any interest or  any other sum chargeable under the provisions of this Act (not being income chargeable under the head salaries) shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force”

Under Section 195, Payments may be of following types

• Interest – TDS @ 20%                     (F.Y. 2013-14)

• Royalty – TDS @ 25%                     (F.Y. 2013-14)

• Fee for Technical Services – TDS @ 25% (F.Y. 2013-14)

• Sale Consideration on account of immovable properties – LTCG – TDS @ 20%

• Short Term Capital Gains u/s 111A – TDS @ 15% (equity shares or units of an equity oriented fund)

• Long Term Capital Gains on unlisted securities - 112 (1)(c)(iii) (without indexation) - 10%

• Income from lotteries, race horses – 30%

• Any other income – 30%

• As per most of the DTAA’s of India, Interest, Royalty, FTS are taxable @10% in the source state.

In Case of Immovable Property sale by a Non- Resident, the purchaser is required to deduct TDS before making the payment to the NRI.

TDS under section 195, buyer has to be deducted on whole of the sale consideration or only on the amount of capital gains in case of purchase of immovable property situated in India from an NRI seller. Answer is; resident buying property from an NRI needs to deduct TDS from the whole sale consideration (not on gains) before making payment to the said NRI.

An NRI selling property in India has the right to apply to the assessing officer for certificate of non-deduction or lower tax deduction. That is for deducting his TDS only on the capital gains.”

For determining the tax liability, the purchaser can move an application to the DDIT (Intl. Taxation) either in Form No. 13 or section 195(2) and Section 197 of the I.T. Act. OR  the Seller ( NRI ) can also move an application to the DDIT (Intl. Taxation) under section 195(3) and Section 197.  

Because if the 20% + surcharge is applied on the sale price, then the NRI may end up getting less than what he had invested.

Also the Buyer have to apply Tax deduction Account Number (TAN) as per section 203A of the Income Tax Act 1961 before deducting TDS from the payment to NRI.

If the purchaser defaults and does not make TDS at the time of registration of the deed – he will be liable to pay the capital gains.

Vicarious liability on the purchaser as in most of the cases Non Residents may not file their return in India and may be out of reach of the Indian Tax Authorities.

Liability of the purchaser u/s 201/195 of the I.T. Act will be calculated @ 30% on total sale consideration.

Even there is no capital gain at all in the transaction or the tax payable on capital gain is less that the TDS deducted, then the payer (buyer) can approach the assessing officer and get a certificate of lower or nil deduction of TDS. This is provided in subsection (2) of Section 195.  Alternatively, u/s 195(3), payee (the NRI seller) also can approach the AO and get the certificate.

Lower or Nil Deduction Of TAX

U/s 195(3) of the I.T. Act, branches / PE’s of foreign companies can move application in form no. 15C & 15D as per Rule 29B to the DDIT(I.T.)

- Onerous conditions for application under section 195(3)

- Applicant has filed returns and regularly assessed for all past applicable years

- He is not in default for tax, advance tax or self assessment tax, interest, penalty, fine or any other sum

- He is not subject to penalty for concealment of income

- Non-banking applicants- additional conditions

- Continuously in business in India for 5 years

- Value of fixed assets as at the end of preceding previous year > Rs.50 Lac

Certificate will be issued specifying the total amount of tax to be deducted before making payment

Remittances Abroad

1)    If the purchaser is making payment to the Non-Residents abroad (remitting), he has to necessarily furnish an undertaking in Form No. 15CA alongwith a certificate from an Accountant (Section 288) in form No. 15CB, as per Rule 37BB & Section 195(6).

2)    W.e.f. 01.07.2009, Form No. 15CA has to be uploaded electronically on the website tin.nsdl.com of the I.T. Department and signed printout is to be submitted to the Authorized Dealers. Circular no.4/2009 dated 29.6.2009.

3)    Earlier, the undertaking of the remitter & the certificate of the Accountant were required to be submitted to the AD’s as per Circular No. 10 dated 09.10.2002.

4)    Section 195(6), Form No. 15CA & 15CB are compulsory for any sum paid to any non-resident or to a Foreign Company (i.e. for any remittances abroad).

5)    If the purchaser has made the payment to the seller in India, seller will be required to file form No. 15CA/15CB while remitting his money abroad.

6)    15CA/15CB require that the remitter has paid due taxes in India as per the I.T. Act or the relevant DTAA.

7)    Chartered Accountant’s certificate is not an alternative to section 195(2).

8)    Remitter continuous to remain liable for non-deduction or short deduction.

9)    Authorized Dealers are not permitted to remit money abroad without obtaining 15CA/15CB from the remitter.

If a Resident Indian or a Non-Resident Indian (NRI) sells a property in India after holding it for a period of more than three years, then long term capital gains tax of 22.66% will be applicable.

In other words, the TDS including surcharge of 22.66% will be calculated only on the capital gains and not on the sale price which will not erode his profits, if any. If this gets approved by the Income Tax office, then the buyer of the NRI’s property can make payment to him in full (ie: sale price), whereas a certificate of (TDS on capital gains) will be issued separately to the NRI.

This procedure takes about 2 to 4 weeks, and will require the NRI to submit some key documents like his sale-agreement, PAN, income tax returns, bank statements and so on. Hence, hiring a chartered accountant or a property lawyer in India would work in his benefit to ensure a smoother transaction.

Is there a way out to avoid TDS By NRI?

There are certain instances when the NRI can get a waiver of the TDS such as; if the NRI is planning to re-invest the capital gains of the property in another property or in tax exempt bonds. In such cases, the NRI will be exempt from tax in India and would not like to have TDS deducted.

Even there is no capital gain at all in the transaction or the tax payable on capital gain is less that the TDS deducted, then the payer (buyer) can approach the assessing officer and get a certificate of lower or nil deduction of TDS. This is provided in subsection (2) of Section 195.  Alternatively, u/s 195(3), payee (the NRI seller) also can approach the AO and get the certificate.

Please note that as per the Finance Act, 2013, TDS at the rate of 1% is applicable on sale consideration above Rs 50 lacs on transfer of immovable property (applicable to resident transferor )