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:
- 20% with indexation (for properties registered before July 23, 2024)
- 12.5% without indexation (for properties registered after July 23, 2024)
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 Avoid Excess TDS: Use of Form 13
NRIs can minimize TDS deductions by leveraging Form 13 under Section 197 of the Income Tax Act. Here’s how:
- File Form 13 with the Income Tax Department to request a lower or nil deduction.
- Submit the approved certificate to the payer (e.g., buyer of the property or bank).
- The payer will deduct TDS at the reduced rate specified in the certificate.
Example: If you sell a property and have minimal capital gains, filing Form 13 ensures TDS is deducted only on the gains, not the entire sale value.
5. Double Taxation Avoidance Agreements (DTAA)
NRIs residing in countries with which India has a DTAA can benefit from reduced TDS rates. The DTAA ensures NRIs don’t pay tax on the same income in both India and their resident country.
To claim DTAA benefits:
- Obtain a Tax Residency Certificate (TRC) from the country where you reside.
- Submit the TRC along with Form 15CA/15CB for remittance of funds.
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.
