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If you're planning to purchase property from a Non-Resident Indian (NRI), there are several crucial aspects to keep in mind to ensure a smooth and legally compliant transaction:
1. Obtain a TAN (Tax Deduction and Collection Account Number)
When buying property from an NRI, it's essential to obtain a Tax Deduction and Collection Account Number (TAN No.). This number is mandatory for the deduction of Tax Deducted at Source (TDS).
2. Deduct and Deposit TDS (Tax Deducted at Source)
Under Section 195 of the Income-tax Act, 1961 (ITA), you are required to deduct tax (TDS) when purchasing property from an NRI. The deducted TDS must be deposited with the Income Tax department within seven days from the end of the month in which the deduction was initiated.
3. File TDS Return
After making the tax payment, you must file a TDS return using Form 27Q and issue Form 16A to the seller. The return must be submitted to the government within 31 days from the end of the quarter in which the TDS was deducted.
4. Payment to SPOA Holder (Special Power of Attorney)
If the NRI seller cannot be physically present in India during the property sale, you'll need to execute a Special Power of Attorney (SPOA). While the SPOA acts as a representative for the transaction, the payment must be made directly to the NRI seller.
5. Obtain RBI Approval for Specific Countries
While every Non-Resident Indian (NRI) has the right to sell their property in India to an Indian citizen, obtaining approval from the Reserve Bank of India (RBI) is mandatory when selling property to NRIs residing in specific countries. These countries include Afghanistan, Bhutan, China, Nepal, Pakistan, and Sri Lanka.
Note: An NRI seller has the option to obtain a lower or NIL TDS deduction certificate to ease the tax burden.
Buying property from an NRI can be a rewarding investment, but ensuring compliance with these essential guidelines is crucial to avoid legal complications and financial implications. Always seek professional advice when dealing with property transactions involving NRIs.
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