Things to note while buying a property from NRI

October 8, 2022 Finance Talk Valli Sarvani No comments

Many people invest in real estate, due to its high returns. However, capital gains tax is applicable on the sale of the property. The tax rate varies for both Indian residents and non-residents.

It is quite common for NRIs to buy a property and sell it for profit. But, if you are buying a property from an NRI, you must note certain points. You have to deduct TDS at the applicable rate.

Generally, if you buy a property from a resident Indian, no TDS is applicable if the sale value of the property is below ₹50 lakhs.

A 1 % TDS is applicable if the sale value of the property is ₹50 lakhs and more. The same rate of TDS is applicable if the stamp duty value of the property is also ₹50 lakhs or more from April 1st, 2022. That means TDS is applicable if the sale consideration or stamp duty value of the property exceeds ₹50 lakhs.

Before April 1st, 2022, only sale consideration was considered. But, after the rule came into force, TDS is applicable on the value of either the sale consideration of property or stamp duty, whichever is higher.

If the stamp duty value is higher than the sale consideration, then the TDS applies to the value. On the other hand, if the sale consideration is higher than the stamp duty value, then TDS is applicable to it. Remember that buyer has to deduct TDS at the applicable rate, i.e. 1%.

But, if the seller is an NRI, you have to deduct TDS even if the property value is below ₹50 lakhs.

The applicable TDS varies as mentioned below:

If the property is held for less than two years, it is treated as a short-term capital gain. Then TDS is applicable as per the income tax slab rates of the seller.
On the other hand, if the property is held for more than two years, then long-term capital gains are applicable. TDS is deducted at the rate of 20%.
Surcharge and education cess are added to the applicable TDS rate. These rates vary with the property value.
If the property value is less than ₹50 lakhs, then the TDS rate is 20.8%, including surcharge and cess. For properties valued between ₹50lakhs and ₹1 crore, it is 22.8%. if the value of the property is above ₹1 crore, the TDS is ₹23.92%.

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