TDS Laws
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TDS is one big term that makes people think twice before making an investment. In fact, the Tax deduction at source is an important part of a property deal and thus the NRIs must know the concept and importance of TDS when finalizing a property deal. Hence, in this blog post, we are letting the non-resident Indians know everything related to the Tax Deduction at Source.

1. What is TDS?

Tax Deducted at Source is a tax collection method in India and the same is carried out under the Indian Income Tax Act of 1961. According to this method, payments can be made only after deducting the predetermined percentage. TDS comes under the Department of Revenue managed by Indian Revenue Service and is managed by the Central Board for Direct Taxes [CBDT].

The tax deduction at source holds utmost importance at the time of tax audits. The Assessee must file a quarterly return as it mentions deduction of TDS that is paid to the Government for the particular tenure.

2. Points to Remember

  • The Rate of Deduction is decided according to the Finance Act.
  • 20% TDS is applicable on capital gains (long-term) on property.
  • 30% TDS is applicable on the rental income.
  • 30% TDS is applicable on short-term capital gains.
  • The rate can be revised and the same will be applicable for deduction according to the categories. Also, the TDS is deducted according to the laws of India. For example, if an NRI rent out his/her property then 30% TDS deduction will be made from the rental amount that is payable on your part.
  • The regular buying and selling procedure will be followed to calculate capital gains in case of buying property from an NRI. However, the 20% TDS deduction is applicable on the calculated long-term capital gains.
  • A person can also deduct 30% according to the double tax avoidance agreement between the NRI’s country of residence and India case you don’t have enough proof of taxable capital gains.
  • You can also exempt TDS deduction in case the seller has investments that offer him/her exemptions under Sections 54EC, 54F or 54. A person has to obtain a no-tax deduction at source certificate from the jurisdictional tax authority.

3. Exemptions on Capital Gains:

  • Section 54/54F– This rebate can be availed if the NRI use the taxable capital gains amount for buying a new property. The exemption can only be availed in case of using the taxable capital gain amount that too within 1 year before the sale or 2 years after the sale of a property. Apart from this, the capital gains can also be used to construct property however the same should be completed within a timeframe of 3 from the sale date.

The tax exemption for the same is applicable on the property deals that took place in India. Also, you can enjoy tax exemption in case of depositing the capital gain amount either in PSU or in any bank.  

A non-resident India can enjoy tax rebate only if he/she don’t have multiple properties in her/his name except the new one.

  • Section 54EC– Tax-saving under this section is also possible on long-term capital gains via investments in bonds issued by bodies like the REC (Rural Electrification Corporation) and NHAI (National Highways Authority of India) among others. These bonds can be redeemed after the completion of three years and the same should not be sold 3-year tenure and should not be sold before the expiry of 3 years from the sale date of the property.

The NRIs must keep all these points in mind to avail the maximum tax exemption.