If you are a Resident India Buyer and looking forward to buying an NRI Property, then you are at the right place. The rules and regulations regarding the buying process of NRI property are kinda sophisticated in nature and responsibility of obeying all of these, is expected from the buyer. Therefore, most of the buyers don’t even think to buy an NRI property.
The buyers can’t do all compliance-related an NRI Property on their own, they need the help of professionals. Also, filing of TDS returns and TDS Deduction is the major challenge of all. Not to forget, the buyer must have TAN for TDS Deductions. I already discussed this process in one of my previous articles “How to Deduct TDS u/s 195?”. 
I agree If, for the buyer’s sake, rules are to be simplified. But this will only result in more violations. For instance, it will be difficult for the IT Department to recover the money if it is repatriated without capital gain tax being paid. Therefore, on the sale of any NRI property, a TDS of 22.88% is applicable. Also, it’s the thinking of the IT Department that the onus of deduction will be on the buyer if there is no compliance by the seller.
First of all, I would like to make clear that some cases are unique in nature and therefore, the applicability of some points mentioned throughout the post may vary. To forewarn the potential buyers is the only aim of this post. The process of claiming a refund of TDS (20.60%), which is generally too high is quite disturbing. Likewise, due to the misrepresentation of facts by the NRI seller, the buyer ends up doing mistakes. Therefore, talking professional of Chartered Accountant guidance is always preferred while buying an NRI property.
NRI Property – Seven Common Mistakes to be avoided by Resident Indian Buyer.
1. The Payment made to SPOA Holder:
In the sale of NRI property, the physical presence of the NRI seller is a must in India. However, due to some unexpected events, it is not always possible for the seller to be physically present at the scene. At such times, SPOA or Special Power Of Attorney is granted to a person who is any relative of the seller and is present in the country. A Power Of Attorney is established for any specific purpose like any sale of the property, is then known as SPOA or Special Power Of Attorney. Not to mention, GPOA or General Power of Attorney provides the authorization for conducting financial transactions in India. POA, GPOA, and SPOA are all the same. But in the case of NRI property, POA is generally referred to as SPOA.
The POA is supposed to be the SPOA if implemented for the motive of the sale of NRI property. The implicit details of the SPOA holder i.e, PAN, relation, etc., along with property details should be specified in the SPOA. I have seen many cases where it has been demanded by the SPOA holder to have payment being made directly to him. Although, we can’t say that this favor is being asked for any intent to fraud, family disputes, avoid TDS, etc. Therefore it is expected that the said rules of any financial transactions should be followed by the buyer, regardless of any reason. And the payment for the NRI Property should be made directly to the NRI Seller’s bank account. The SPOA holder is just a representative and not beneficiary of the NRI seller’s property transactions. Being appointed only to carry out financial transactions of the NRI seller.
In one case, an SPOA holder demanded that the TDS of 1% should be charged on him because he is a resident of India. This is unacceptable. The TDS rate is applicable according to the NRI seller’s residency status. It can be 22.88%.
2. TDS deduction rate for Sale of Property by NRI Seller.
Due to insufficient information, there are some unknown areas where the buyer usually gets confused i.e, (1) TDS Percentage & (2) Value on the basis of which deduction of TDS is done. Wrong TDS percentage or wrong TDS value is the most common mistake on the part of the buyer. It can be explained as below. For instance, TDS of 22.88% should be deducted by the buyer on total consideration value for NRI property. If the value of consideration is more than 1cr. then the rate of TDS will be 20.6%. And 10% of surcharge will be included along with 4% Cess. The TDS rates explained above will be applicable, as long as the Nil/Lower Tax Deduction or Tax exemption certificate issued by the Income Tax Department is not produced by the NRI Seller.
The Capital Gain Tax calculation is shared by the NRI seller with the buyer in a few cases. Where deduction of 22.88% on LTCG or 33.99% on STCG is deducted by the buyer from the NRI seller. In the extract, the deductions will not be made on total consideration value but on the Capital Gain Value. Here, the capital gain cannot be certified by the buyer on the NRI property.
Not very long, one of my clients was told by the NRI seller that the capital gain will be reinvested, so there is no applicability of any TDS. But first, I want to make it clear that any kind of future compliance cannot be enforced by the buyer. And the authority to reach any conclusion doesn’t exist within the buyer unless the seller’s justification is acceptable by the seller’ AO or CA. Deduction of TDS u/s should be done by the buyer. Moreover, a refund can be claimed by the NRI seller, if the capital gain is reinvested to get the capital gains deduction benefits U/s 54, 54F and 54EC.
There is also a misbelief, that there is no applicability of TDS if any capital loss is incurred by the seller. Well, this is absolutely incorrect. Even in the case of Capital Loss TDS has to be deducted at 22.88% and after that, the seller can claim a refund by filing Income Tax Returns. To avoid TDS a NIL deduction certificate should be produced by him.
3. Payments made in Indian Savings Account:
The buyer can deposit the sale proceeds from NRI property in NRE/NRO/FCNR accounts. Many times, the buyer is forced to make payments in Indian Savings Accounts by the NRI seller. This is not right. You may have been thinking, how can you check the bank account status as a buyer. Therefore, in the sales deed, you should include the bank account details in order to safeguard interest. As declared by the seller, the type of accounts as NRE/NRO/FCNR should be mentioned in it too. The seller will be in a problem if there is any misrepresentation or mistake by him. As recorded in the sale deed, bank and Account details of a seller should also be mentioned in DD/Cheques/ Banker’s Cheque. NRI property can be purchased only after the fulfillment of this point.
4. Residency Status, Citizenship, and PAN :
I saw many cases, where different methods are used to avoid TDS. A client of mine was told by the NRI seller, that TDS of 1% is applicable, cause the address on his PAN card is Indian. This option was suggested by the NRI seller’s C.A But it is entirely wrong as it defeats the basic spirit of the law.
There is one another case A citizen of India obtained citizenship of the USA and surrendered his Citizenship of India. And after a stay of 182 days or more, his citizenship changed to resident Indian once again only as per the income tax Act. As his residency status is now of resident Indian, he said to my client that his property is now not an NRI property. But the seller is now governed by the FEMA’s rules and regulations. It states that any Resident Indian is treated as an NRI, who is a foreign national or PIO/OCI with citizenship of other country or non-Indian citizenship. In all such circumstances, there is the applicability of TDS @ 22.88%.
The buyer can also safeguard his financial interests by including essential clauses in the sale deed, in case if he is not feeling concerned or having doubts.
5. Tax Account Number (TAN):
As specified under section 195, TDS can only be deducted, when Tax Account Number or TAN is obtained. Also, certain penalties will be applicable if TDS is not deducted or deducted without TAN by the respective buyer. The penalties may be as I explained in my post on NRI property. In the case of joint property purchase, some common mistakes happen on part of the buyer. It is suggested by the agents or brokers that application for TAN and deduction or deposit of TDS should be done by one of the buyers, which is not the right procedure. Actually, all buyers are under obligation to deduct and deposit TDS in the proportion of the property’s ownership. That is why the Tax Account Number or TAN is required by all the buyers of property.
6. The Payments being made in case of Joint Sellers:
The payment for property should be made in the proportion of the property’s ownership, only if it is a case of Joint-Sellers. One seller cannot receive payment on behalf of other sellers if both of the sellers are NRI sellers. The same compliance process is applicable to all of the NRI sellers.
7. Tax Deduction at Source (TDS) on Home Loan:
If you are looking for a home loan, then I will advise that you should inform your home loan provider to check all the details and deduct the TDS only according to the registered residency status of the seller. It is advisable that all the calculations and the TDS, which is to be deducted from Home Loan Disbursement should be specified or informed to the Home loan provider. The Tax Deduction at Source or TDS will be deposited in the loan borrower’s respective bank account. The same should be deposited later by the borrower. It is a misbelief that on Home Loan Amount, there is no applicability of TDS on NRI property, which is not right. Well, I did my best to cover all the essential points and common mistakes, which resident Indian buyers mostly do, while purchasing any property from Non-Resident Sellers. But I guess the list of mistakes is never-ending. Therefore, it’s been advised that a buyer should necessarily take the help of professionals to close a deal. Even though, if you have any doubts or queries related sale of property or buying property from NRI you can write it to me tax@aktassociates.com or call us @ 8080809061