Tax and TDS on Sale of Property

Tax and TDS on Sale or purchase of Property

The resident Indian is liable to deduct tax at 30% on STCG or 20% on LTCG arising to NRI from the consideration payable for purchase of Immovable Property. Failure to deduct tax may attract penalty and interest on the resident Indian.
He may request NRI to arrange for a Tax Exemption Certificate (TEC) from the Tax Officer directing the amount of appropriate tax to be deducted/ withheld from the sale consideration and deposit the same with the Tax Department within the prescribed timelines.
It takes about 3 weeks to 6 weeks to obtain TEC from the Tax Department but that protects the resident Indian from any liability.
Alternatively, any buyer purchasing a property from NRI, can also submit a similar application for lower deduction in the prescribed form electronically, for determination of appropriate rate of tax to be deducted and the net amount payable to NRI after said deduction of tax.

Exemption under Section 54EC
This section allows an exemption from long-term capital gains tax if the gains are invested in specified bonds.
Exemption under section 54F
Section 54F provides an exemption from long-term capital gains tax on the sale of any asset other than a residential property if the proceeds are invested in a residential property.

The detailed tax compliance process for buying property from an NRI seller is as under:

Obtaining TAN (Tax Deduction Account Number): Buyer should acquire a TAN under section 203A of the Income Tax Act before deducting TDS. TAN is a 10-digit alpha numeric number. To obtain a TAN, an individual needs to submit a Form online or offline at the Tin facilitation centers (TIN - FC) managed by NSDL.
TDS at the Time of Payment: Buyer must deduct TDS at the applicable income tax slab rates in force (which may work out to be higher as compared to TDS on resident seller) at the time of making payments to NRIs.
Deposit of tax deducted at source: TDS deducted by the buyer should be deposited with the government treasury as TDS payment on or before the 7th of the following month in which the TDS was deducted from seller.
e-TDS return filing: After depositing the TDS, the buyer should file e-TDS return (Form 27Q) within the deadline.
Issue TDS Certificate: After filing TDS returns, buyer needs to issue TDS certificate (Form 16A) to the NRI seller within 15 days from the due date of e-TDS return.