The Union Budget 2022 had something for high net worth non-resident Indians (NRIs) selling real estate in India. The Finance Minister has proposed to cap the surcharge rate on long-term capital gains (LTCG) on transfer of any long-term capital asset at 15%. The objective is to bring parity with the surcharge rate on LTCG tax from various properties. At present, LTCG on transfer of immovable property property attracts a surcharge of up to 37%, if the income of individual taxpayers exceeds the limit. 5 crore in a financial year, while the surcharge on LTCG from listed securities is already capped at 15%. Property sellers belonging to a large number of NRIs come under the ambit of the current applicable surcharge which is up to 37%. Additionally, NRIs have to pay Tax Deduction at Source (TDS) on the entire property value and not just on the profit. Limiting the rate of surcharge on LTCG to 15% will bring a big relief. The profit on the taxation front is up to around 4.5%. Let’s look at the tax implications that NRI property sellers need to deal with:
TDS under section 195: TDS should be deducted while making any payment to NRI. The details of the deducted TDS and the rate at which the deduction was made should be mentioned in the sale deed between the NRI seller and the buyer. TDS deducted by the buyer should be deposited for TDS payment through Challan No./ITNS281 on or before 7th of the month in which TDS is deducted. TDS can be deposited through banks that are authorized to collect direct tax by the Government of India or the Income Tax (IT) Department.
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Property buyers should also first obtain TAN under section 203A of the IT Act, 1961 before deducting TDS. TAN can be obtained by filling Form 49B and applying for the same. Also, note that the seller cannot apply for a reduced TDS certificate without the buyer’s TAN. However, it may be noted that the surcharge for the financial year 2022 or starting from April 1 will be reduced as per the Union Budget proposal. It is important to remember that the above deduction is made on full payment and not on profit. For example, for property value 6 crores (which is > .) 5 crore), the applicable TDS rate will be 28.496%. Once the rate of surcharge becomes 15%, the highest effective TDS rate will be 23.92% instead of 28.496% at present, which means savings of over 4.5% for NRIs.
Remittance of assets by NRO/PIO: NRIs or Persons of Indian Origin (PIOs) can remit up to $1 million per fiscal year from the balances held in their Non-Resident Ordinary (NRO) Rupee account/sales proceeds of assets (including assets acquired by them). Inheritance method of disposal). Initially, the sale proceeds should be credited to the NRO account. If the seller can convince the bank that the asset was acquired through his international fund or that payment for the acquisition of the asset was made through his NRE account, he can transfer money from the NRO to the NRE and can return it.
Also, note that a copy of the registered sale deed will be required to be dispatched to the seller. It is very important to keep this point in mind when the registration is taking place at the end of the financial year or at the end of March. The seller may miss the annual limit if the scanned copy of the registered sale deed is not shared with the bank. We believe that for NRIs who want to sell their properties, it will be very beneficial to avail the reduced surcharge of 15% on capital gains with effect from April 2021.
Rakesh Agarwal India is Senior Vice President at Sotheby’s International Realty.
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