According to the Income Tax Act of 1961, TDS plays a pivotal role in property transactions involving NRIs. The calculation of TDS hinges on whether the property falls under Short Term Capital Gain (STCG) or Long Term Capital Gain (LTCG).
Here’s the breakdown:
1. Short Term Capital Gain (STCG):
If the NRI sells the property within two years of acquisition, TDS is calculated under STCG. As a buyer, it’s crucial to be aware of this timeline to ensure accurate deductions.
2. Long Term Capital Gain (LTCG):
When the property is sold after two years, TDS is calculated under LTCG. This distinction is vital for determining the appropriate TDS amount during the transaction.
For buyers, overlooking the deduction of TDS could lead to future penalties. To avoid potential financial pitfalls, engaging with a Chartered Accountant (CA) becomes imperative. Discuss the specifics of the transaction with your CA to calculate the exact tax amount based on the applicable slab, and subsequently, deduct the TDS accordingly.
However, there’s a noteworthy exception. If the NRI provides you with a lower TDS certificate from the Income Tax department, you have the flexibility to deduct a reduced TDS amount, aligning with the determined slab.
The process of purchasing a property from an NRI involves careful consideration of TDS implications. Stay informed, collaborate with professionals, and ensure compliance with the Income Tax regulations. By doing so, you not only safeguard your investment but also pave the way for a smooth and transparent property transaction.