Article on Applying for Lower or NIL TDS Certificate For Non-Resident Indians (NRIs)

This article emphasizes applying for Lower or NIL TDS Certificate for cases where  NRIs sell their immovable property in India. 

Whenever a property is being purchased, at the time of purchase, the buyer must deduct TDS at the rate of 1% from the value of sale consideration and pay the  balance to the seller if he happens to be a resident of India for transactions where  the sale value exceeds Rs 50 Lacs or more under section 194IA. Online return cum  challan is to be filed in form of 26QB for same. 

However, if the seller happens to be a non-resident of India (NRI), the tax to be  deducted would be at a higher rate of 20%, irrespective of the value of sale  consideration. So even if the value is below Rs 50 Lacs, TDS at a rate of 20% is  applicable. The amount deducted is to be deposited to tax authorities through  challan and the TDS return is to be filed for payment under section 195. 

The higher rate of 20% is prescribed considering the tax rate on the taxability of  long-term capital arising out of the sale of immovable property and for a reason that  the NRI community at large are non-taxpayers or non-filers of Income Tax returns in  India.  

Since the TDS at the rate of 20% is to be deducted from the sale value of the  transaction and not on the actual capital gain, the TDS amount is bound to happen to  be more than the actual tax liability. In such a scenario, the assessee ends up paying  more tax amount in form of TDS and later claims a refund by way of filing the income  tax return. Genuine difficulty is caused to the assessee in such cases, specifically  where there is no or negligible capital gain or in case of capital loss. The funds are  blocked until the refund is processed back by the income tax department resulting in  unnecessary withholding of capital.  

To eliminate such a situation of creating a burden on non-resident Indian assessees,  the Income tax law provides an option to apply for a Lower Deduction Certificate  from the concerned assessing officer (AO) under the provisions of section 197,  allowing TDS to be deducted at a NIL rate in case of long-term capital loss or at a rate  as commensurate to cover the effective tax liability of the taxpayer.  

Application by an NRI for issuance of a lower deduction certificate under section 197  of the Income-tax Act, 1961, for no deduction of tax or deduction of tax at a lower  rate has to be made in Form 13 online. In case there is more than one seller, the  application has to be made separately for all sellers. 

Documents and Details to be submitted along with the application are as follows: 1. PAN Card of the assessee 

• Property purchase deed  
• Payment schedule/details of purchase for the source of funds 
• Agreement / Memorandum of understanding for the sale of property 5. Valuation certificate as per section 50C for income tax purpose 
• Computation of Capital Gain  
• Bank statement reflecting token amount received from the buyer 
• Proof of Non-Resident Indian (Passport, Residency VISA, Employment Letter,  Entry and Exit Stamps etc) 
• Proof of expenses being claimed if any 
• Copy of Income Tax Return, 26AS and Computation for last 3 years of seller 11. PAN and TAN of the Buyer 
• Mobile number and Email ID of the Buyer 
• Supporting documents if claiming exemption under section 54 

Once the application is filed successfully, the assessing officer will review the  documents/information submitted and ask for further queries and documents  before issuing the certificate/rejecting the application. The important thing here is to  get the PAN migrated to the jurisdictional officer having jurisdiction of International  Taxation who would eventually issue the certificate. On being satisfied that a lower  deduction of TDS is justified, he shall issue a certificate for the same under Section  197. On successful issuance of the lower deduction certificate, the TDS will be  deducted as per the TDS Rate stated in the Certificate. Surcharge and Education as  applicable are to be added as per the rules. This certificate would be issued online,  and the taxpayer can download it from the portal. 

The power of the assessing officer is to issue a minimum rate of lower TDS  certificates at a rate of 3%, however, for a rate below that prior approval of CIT is  needed to be taken by the AO, in most cases which are accorded.  

The usual time taken is 30 – 45 days to get the certificate from the assessing officer  after the successful application is made. A lower deduction certificate is issued for a  particular period, It holds its validity from the date of issuance till the end of the  validity date as mentioned in the certificate or unless cancelled by the assessing  officer before its expiry.

Example to Consider the benefits of applying for a lower TDS certificate: