For Non-Resident Indians (NRIs), understanding TDS for NRIs on Property Sales and Income is essential as it impacts various financial transactions, from property sales to interest earned and investments. While TDS on property sales is widely discussed, many NRIs are unaware that TDS also applies to other forms of income like dividends, royalties, and fees for technical services. Moreover, updating your KYC details to NRI status brings new tax implications that must be considered.
This blog serves as a comprehensive guide to understanding TDS for NRIs, how it applies to property and other income streams, and what you need to know when updating your KYC as an NRI.
1. TDS on Sale of Property for NRIs
When NRIs sell property in India, the buyer is responsible for deducting TDS before making payments. The rate of TDS depends on the holding period of the property:
Short-Term Capital Gains (STCG)
- Holding Period: Less than 24 months
- TDS Rate: 30% (based on income tax slab for NRIs)
- Tax Liability: Gains are taxed at the NRI’s applicable slab rate.
Long-Term Capital Gains (LTCG)
- Holding Period: More than 24 months
- TDS Rate: 20% (regardless of tax rate applied)
- Tax Liability: For properties registered on or after July 23, 2024, the tax rate is a flat 12.5% without the benefit of indexation. Properties registered before this date may choose between the older rate of 20% with indexation or the new flat rate, depending on which is more favorable.
Key Point: Even with the 12.5% LTCG tax rate for properties post-July 2024, the TDS remains at 20% unless you obtain a Lower TDS Certificate (Form 13) under Section 197.
For more details and guidance, read our comprehensive blog: TDS for NRIs on Property Sales in India
2. Other Forms of TDS Applicable to NRIs
TDS doesn’t stop at property sales. It applies to a range of income sources for NRIs:
| Type of Income | TDS Rate |
| Interest on NRO (Non-Resident Ordinary) accounts | 30% |
| Income from long-term capital gains (Section 115E) | 10% |
| Short-term capital gains (Section 111A) | 15% |
| Dividends from mutual funds or Indian companies | 20% |
| Rental Income | 30% |
| Royalties | 10% |
| Fees for Technical Services | 10% |
| Other Income | 30% |
Additionally, education cess (4%) and surcharge (based on income slabs) are applied over the TDS rate.
3. Updating KYC as an NRI: Impact on TDS
A common question NRIs ask is whether updating their KYC status to NRI impacts their taxation. The short answer is yes, and here’s why:
- Bank Accounts: Once your status is updated to NRI, your resident savings accounts are converted into NRO (Non-Resident Ordinary) accounts. Any interest earned on NRO accounts is subject to 30% TDS.
- PAN Card: Ensuring your PAN is updated as an NRI is essential. A mismatch can lead to higher TDS rates (up to 30%) under Section 206AA for transactions where PAN is not linked.
- Investments: Dividends, capital gains, and income from investments in India are subject to TDS, and tax treaties (DTAA) may apply to avoid double taxation.
- Property Sales: Buyers are required to deduct TDS at 20-30% depending on the holding period. Updating your KYC helps ensure accurate deductions.
Tip: If your tax liability is lower, file Form 13 to obtain a Lower TDS Certificate, which reduces upfront tax deductions and avoids waiting for refunds.
4. How to Minimize TDS Deductions Using Form 13
Tax Deducted at Source (TDS) on property sales is typically calculated on the total sale value, serving as an advance tax. This deduction is mandatory, even if the actual tax liability is lower than the deducted TDS. To address this mismatch, NRIs can apply for relief through Form 13 under Section 197 of the Income Tax Act.
By filing Form 13 with the Income Tax Department, taxpayers can request a lower or nil TDS deduction based on their specific tax situation. The application requires a detailed computation of anticipated capital gains and applicable exemptions, such as those under Section 54 or Section 54F (e.g., reinvestment in residential property). If approved, the reduced TDS rate is communicated to the buyer or payer, ensuring deductions are made only on taxable gains and not the total sale value.
For example, if capital gains are minimal due to reinvestment exemptions, filing Form 13 can significantly lower the TDS burden or eliminate it entirely. Accurate calculation, proper documentation, and timely filing are essential to avoid unnecessary cash flow challenges and ensure compliance.
Seeking guidance from tax professionals can help NRIs navigate the process effectively, maximizing benefits while adhering to tax regulations.
5. Double Taxation Avoidance Agreements (DTAA)
NRIs residing in countries with which India has signed a DTAA (Double Taxation Avoidance Agreement) can leverage reduced TDS rates and avoid being taxed on the same income in both countries. This agreement ensures tax relief and facilitates smoother financial management for NRIs.
To claim DTAA benefits:
- Obtain a Tax Residency Certificate (TRC) from your country of residence.
- Submit the TRC along with Form 15CA/15CB during the remittance of funds.
For an in-depth understanding of DTAA benefits for NRIs, refer to our comprehensive guide on DTAA.
6. Key TDS Compliance Steps for NRIs
If you are receiving income in India or selling property, follow these steps:
- PAN and TAN: Ensure your PAN is updated, and the buyer has obtained a TAN to deposit TDS.
- TDS Deduction: TDS must be deducted by the payer and mentioned in the transaction agreement.
- TDS Payment: The payer deposits the TDS using Challan ITNS 281 within 7 days of the month following deduction.
- File TDS Returns: The payer files TDS returns via Form 27Q every quarter.
Obtain Form 16A: Collect Form 16A (TDS Certificate) from the payer to claim TDS credits while filing your Income Tax Return (ITR).
7. Common Pitfalls to Avoid
- Failure to Update KYC: Incorrect resident status can lead to unnecessary penalties or higher TDS deductions.
- Not Filing Form 13: Higher TDS deductions occur if you don’t request a lower deduction certificate.
- Delays in TDS Compliance: Late filing or payment can result in interest penalties and legal consequences.
- Ignoring DTAA Benefits: Without a Tax Residency Certificate, NRIs may miss out on lower tax rates.
Conclusion
TDS for NRIs on Property Sales and Income applies to various income sources, from property sales to interest on NRO accounts and dividends. While property sales involve a TDS rate of 20-30%, other earnings are taxed at varying rates under Section 195. Updating your KYC to NRI status ensures accurate tax deductions and avoids penalties.
By leveraging Form 13, claiming DTAA benefits, and ensuring compliance with TDS regulations, NRIs can minimize tax deductions and optimize their financial returns. For expert assistance with TDS compliance, property sales, and tax-saving strategies, Brivan Consultants provides end-to-end support tailored to NRI requirements. Contact us today to simplify your taxation journey.
