Non-resident property transactions in India face compliance challenges, including obtaining TAN, depositing TDS, and filing e-TDS returns

NRIs selling property in India face a maze of income tax, TDS rules: Simplification urged in Budget 2025 It is hoped that Budget 2025 simplifies these processes and enables overseas bank payments to ease the compliance burden for buyers and sellers, fostering smoother cross-border property deals

Poorva Prakash

Partner, Deloitte India

In a purchase or sale of immovable property located in India by Non-Resident Indian Citizens (NRIs), the compliances differ considerably as compared to those for property deals conducted by an Indian resident. The taxation of long-term gains and TDS compliances are different when the seller is an NRI. Further, an NRI property seller is also required to navigate through compliance under foreign exchange regulations (FEMA).

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As per FEMA, NRIs cannot buy agricultural land, plantation property and farmhouses in India. Also, they cannot sell agricultural land, plantation property or farmhouse to an NRI or PIO resident outside India. Remittance abroad of proceeds related to property are subject to thresholds limits under FEMA.

Also read | Income tax deductions are not inflation linked, hitting taxpayers harder: Budget 2025 needs to hike these

So far as tax laws are concerned, the last full budget presented in July 2024 made some significant changes to the capital gains tax provisions. This included removal of the indexation benefit for long-term capital gains from sale of immovable properties after 22 July 2024 as well as reduction of tax rate on long-term capital gains rate to 12.50% from 20%. For resident taxpayers, the tax on long-term gains from sale of property acquired prior to 23 July 2024 is restricted at 20% with indexation relief where tax computed as per revised provisions exceeds this amount. NRI sellers do not receive any such benefit. Thus, NRI sellers need to take cognizance of the changes in capital gains provisions and related impact while selling their properties.

Tax withholding compliance adds another layer of complexity when an NRI sells a property in India to a buyer. The purchaser would need to obtain a Tax Deduction and Collection Account Number (TAN) and deduct tax at source when paying the seller for the property. TDS provisions applicable for NRI sellers mandate deduction of tax at prescribed rates which depend on whether the capital gain is long-term gain or a short-term gain. If the buyer is of the view that entire sale consideration would not be subject to tax, then they would need to approach the tax officer for determining the income of the NRI seller and the appropriate tax withholding. Alternatively, the seller can obtain a certificate from the tax department for determination of the TDS rate on the sale consideration receivable by him. In either case, the determination of appropriate TDS needs to be done in advance of the transaction, to ensure appropriate TDS is deducted. Upon deduction of TDS from the payment to an NRI seller, the buyer must deposit the same via ITNS-281 challan, file a TDS statement in Form 27Q within the statutory timelines and issue a TDS certificate to the seller in Form 16A.

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Also read | 5 income tax reliefs that professionals, small businesses expect in Budget 2025

In case property is purchased from a resident seller, the TDS process is simpler. There is a flat rate of 1% for TDS and the buyer is required to deposit the TDS through a simplified challan-cum-return in Form 26QB and issue a TDS certificate to the seller in Form 16B. Further, in case the stamp duty value and sale price of the property, both are less than Rs 50 Lakh, this TDS compliance is not applicable.

In view of above challenges, it would be a welcome move if the government considers some of the below relaxations for NRI property transactions in Budget 2025:

Introduction of a simplified, PAN based, challan-cum-return Form for TDS compliance in case of NRI sellers of property in India, similar to what is available for resident sellers of property. This would ease compliance for individuals and would avoid delays. Since purchase and sale of the property is not a recurring transaction, obtaining TAN solely for the mentioned purpose may also result in more inactive TANs.
Government may also consider prescribing a flat rate of TDS for NRI sellers which will bring in certainty for both buyers and sellers. This would ease compliance process of determination of appropriate income and TDS for buyers and sellers as well as administrative burden.
There could also be situations where NRI sellers have an income tax refund in their tax return due to higher tax being deducted from the sale price paid to them. . In order to receive this refund, the NRI seller needs to maintain an active bank account in India. To alleviate the difficulty, foreign bank accounts should be considered for tax refunds for PAN-holders registered as NRI/ foreign nationals.

The author is Poorva Prakash, Partner, Deloitte India.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

This story originally appeared on: India Times - Author:Faqs of Insurances