Whenever an NRI receives any payment on the sale of Property, TDS is required to be deducted on such payments. The person who is making the payment to the NRI deducts TDS and makes the balance payment to the NRI.
This TDS is then deposited with the Income Tax Department as tax on behalf of the NRI. However, in some cases what happens is that the TDS Deducted is much more than his actual tax liability.
Case Study
If an NRI sales a property in India, the buyer will deducted TDS on sale consideration amount and the same amount which the buyer deduct we be deposit to income tax department.
Calculation of TDS without Lower TDS Certificate and With Lower TDS Certificate
In such cases, where the TDS Deducted is more than the actual tax liability, the NRI has 2 options:
1. Claim Refund of the excess TDS Deducted by filing for Refund at the time of filing of Income Tax Return which is done after the financial year is complete.
2. File an application with Income Tax Officer for Lower Deduction of TDS.
The practical analysis of both these options has been discussed below.
Option 1: Claim Refund at end of Year
Under the 1st option of claiming refund at the end of the year, the amount of Rs. 16,01,600 gets stuck with the income tax department which is claimed as a refund at the end of the year.
Now, if the property is being sold say in August 2020, then the ITR would be filed after the end of FY 2020-21. The ITR would be filed in the month of July 2021 and it will take at least 6 months for the refund to be processed. So, you can expect the refund to be processed any time after Dec 2021.
However, what is important to note here that 6 months is the bare minimum time which would be taken to process the refund. The reason for such a long time is that first the income tax department will process smaller refunds and then they will start processing bigger refunds.
If it was a refund of less than Rs. 5 Lakhs, the refund would have been easily processed. However, for bigger refunds like the one discussed above – it will take time for the income tax department to process the refund.
Moreover, as the refund amount is huge – the income tax department may also like to verify all the documents and may send a scrutiny notice for the same. In case a scrutiny notice is issued, it will delay the refund by some more time. Apart from the time consumed, replying to scrutiny notices is a cumbersome process and therefore most NRI’s prefer not to opt for Option 1 and rather opt for Option 2 which has been explained below.
Option 2: Apply for Certificate for Lower Deduction of TDS
The 2nd option available to the NRI is that before selling the property, files an application with the income tax Department for lower deduction of TDS. Along with this application, he would also be required to submit all supporting documents required for the computation of capital gains.
This basically is a pre-assessment wherein the NRI is requesting the income tax officer to verify everything and issue a certificate for lower deduction of TDS. If everything is found to be in order, the assessing officer will issue a certificate for lower deduction of TDS.
The NRI can go back to his country of residence without worrying about the refund or any future scrutiny notices.
Various supporting documents would be required to be submitted to the Income Tax Office and post verification of the documents, the officer will issue the certificate for lower deduction of TDS.
Which option should the NRI opt for?
The option of applying for certificate for Lower Deduction of TDS is certainly a better option as the NRI is getting all the money right now and does not have to worry about refund. As he has already opted for pre-assessment while filing the application for Lower Deduction of TDS, he also does not have to worry about any future scrutiny notices. He can easily repatriate the funds to his bank account in other country without any hassle immediately after selling the property.
However, the NRI should make sure that he files the application at least 30-45 days before selling the property as the income tax officer will take this much time for verifying the documents.
