Acquiring a home is one of the major life decisions that make you lead a happy and comfortable life. If you are interested in buying an NRI Property, then you have to know some rules and regulations to make your buying process without any disputes. The TDS on the sale of any NRI property is 22.88%. Due to the misrepresentation of data by the NRI seller, the buyer tends to make mistakes while buying a property. To overcome all these problems taking professional help while buying an NRI property is a very wise choice.
Look at the below seven most common mistakes made by resident Indian buyer and measures to avoid them.
Paying to Special Power of Attorney
When buying an NRI property, the NRI seller must present in India. The physical presence of NRI is not always possible due to some reasons at the time of payment. In such cases, the Special Power Of Attorney (SPOA) is given by NRI to any relative who is living in India. The General Power of Attorney (GPOA), Special Power Of Attorney (SPOA), and Power Of Attorney (POA) are used as the authorization for conducting financial transactions in India. This SPOA is useful for important purposes such as the sale of NRI properties. There are many cases as being an SPOA holder he/she demands to pay the sale amount to him directly.
But the payment to the holder may cause fraud, disputes in family, avoiding TDS, etc. So the buyer has to follow the stated rules of any financial transactions to avoid future disputes. You should know that the payment for NRI should be made directly to their bank account. The SOPA holder has appointed only to carry out the property transactions of NRI seller and not the beneficiary for those transactions. In some cases, the SPOA holder demands 1% TDS charges for him because he is residing in India as it was offensive. According to the NRI seller’s residency status, 22.88% of TDS rate can be applied.
Rate of TDS Deduction for NRI Property Sale
Many buyers get confused for TDS Percentage and Value-based on which deduction of TDS is made while buying NRI property due to lack of information. The buyer commonly gets to make mistakes while deducting TDS values, for example, if the value of NRI property is more than Rs 1 crore then the 22.88% TDS is deducted from total consideration value by the buyer. Then 20.6% is the rate of TDS and for this surcharge 10% is included with 4% of Cess. The above TDS rates will be applicable until the NRI Seller does not produce the Nil or Lower Tax Deduction or Tax exemption certificate that is issued by the Income Tax Department.
In some cases, the NRI seller shares the Capital Gain Tax calculation with the buyer. By which the deduction on LTCG of 22.88% or STCG of 33.99% is removed from the NRI seller to the buyer. The deductions of the property will not be made on total consideration value, but from the Capital Gain Value (CGV) and CGV cannot be certified by the buyer on the property of NRI. Some buyers say that the capital gain would be reinvested and there would be no applicability of any TDS. As a buyer and not to enforce any future compliance, you have to know that the authority to reach any closing doesn’t exist within the buyer unless the seller’s justification is acceptable by AO or CA seller. And the buyer should have to make TDS deductions.
Moreover, the NRI seller can claim a refund, if the capital gain is reinvested to get the deduction benefits Under 54, 54F and 54EC sections. Some buyers also mistake that if the seller incurs any capital loss, their TDS will be not applicable. But 22.88% of TDS is deducted even there is Capital Loss TDS, and after this, the NRI seller can claim a refund with filing Income Tax Returns. To avoid TDS, a certificate with NIL deduction should be provided by NRI.
Payment Deposit in Savings Account of Indian
While buying an NRI property the payment can be deposited in NRE/NRO/FCNR accounts. In some cases, the NRI seller forces the buyer to deposit the transaction amount in Savings Accounts of Indian. This was a big mistake made by the buyer for not checking the bank account status and making payment in an Indian savings account. So to safeguard interest, you should include the bank account details and the type of accounts such as NRE/NRO/FCNR in the sales deed.
Therefore if there is any misrepresentation in the transaction, then the seller will be in problem. As recorded in the sale deed, the details of bank and account details also are included in DD/Cheques/ Banker’s Cheques of seller. After checking all these, the purchase of NRI property can be made without any problems.
Residency Identity Proof
In some cases, in the process of buying NRI property to avoid TDS, many methods are used by the seller. Some buyer’s misbelief that only 1% TDS is applicable due to mentioning address on his PAN card as Indian. Also, a citizen of India obtained USA citizenship and submitted his Indian Citizenship. And after a stay of more than 182 days, he has changed his citizenship as resident Indian as per income tax Act. His residency status is now of resident of India, and he said now his property is not a property of NRI.
But the FEMA’s rules and regulations state that any Indian resident who is foreign national or PIO with citizenship of other country or non-Indian citizenship is considered as an NRI. In these cases, the TDS of Rs 22.88% is applicable in property transactions. As a buyer, your financial interests will be safe if you include any conditions in the sale deed like you have any doubts, not feeling concerned, etc.
Tax Collection Number (TAN)
TAN (Tax Deduction and Collection Account Number) is a ten-digit alphanumeric number issued by the Income Tax Department. If you have Tax Account Number TDS can be deducted. Also, some specific penalties will be applicable if you not deduct TDS or deducted without TAN. When buying a joint property purchase, there will some common mistakes happen. Some agents or brokers advise that application for TAN and deduction or deposit of TDS should be made by the buyer, which is not the correct procedure. To obtain a Tax Account Number or TAN of property to deduct and deposit TDS in the proportion of the property’s ownership.
Joint Sellers Payments
In case if you are buying an NRI joint sellers property, then the payment of such property should be made in the proportion of the property’s ownership. You should not pay to one seller on behalf of other sellers to own an NRI joint seller property. For all of the NRI sellers, the same rules are applicable.
TDS Deduction for Mortgage Loan
If you are applying for a loan to buy a flat in Hyderabad, it is advised that you should inform your mortgage provider to check all the details according to the registered residency status of the seller and TDS deductions. Also, all the calculations and TDS deductions that have made from the home loan should be informed to the Mortgage lender. In the bank account of loan borrower, the tax deduction at source or TDS will be deposited, and the borrower should deposit the same amount later.
You should know that the TDS on NRI property cannot be deducted if you get a home loan as it is a wrong statement. So while buying an NRI property, you should know the correct things should be done without any misbelief to avoid risks for property transactions in future.
The above are important points and some of the common mistakes, which are usually done while buying an NRI property by resident Indian buyers. So to avoid the risks, you should be aware of some rules and take the help of professionals to close a deal successfully.
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By: Shailaja K