A certificate can lower TDS for NRIs on sale of property

THIS ENSURES TDS ONLY ON ACTUAL CAPITAL GAINS

- SAIKAT NEOGI

WHENEVER A NON-RESIDENT Indian (NRI) sells a property, the buyer has to deduct tax on the gross sale consideration rather than on the actual taxable gains. However, there's a way out to ensure that tax is withheld only on the real capital gains arising from the sale and not on the entire transaction value.

For this, an NRI has to make an application to the income tax department before the actual transaction for issue of a lower deduction certificate under Section 197 of the Income-Tax Act, 1961. This application has to be made in Form 13. The department will issue a certificate directing the buyer to deduct tax at source (TDS) only on the taxable portion of the capital gains, or at a reduced rate.

Sandeep Jhunjhunwala, partner, Nangia Andersen, says buyers deduct tax on the gross sale consideration rather than on the actual taxable gains in case of buying a property from an NRI. "This results in significant excess withholding, leading to cash-flow challenges for the seller who can claim refunds only after filing tax returns," he says. The Lower Deduction Certificate thus makes the excessive tax deduction unnecessary.