Selling property in India as a Non-Resident Indian (NRI) can be complex, especially when it comes to Tax Deducted at Source (TDS) implications. TDS rates for NRIs can be high, leading to blocked funds awaiting refunds. However, there's a solution under the Income Tax Act - the Lower Deduction Certificate (LDC). This guide explains the purpose, legal position, and action plans for business leaders dealing with NRI property sales.
Under Section 194IA of the Income Tax Act, Indian resident sellers face a 1% TDS on sale consideration above INR 50 lakhs. In contrast, NRIs are subject to a flat 20% TDS plus surcharge and cess, regardless of property value. The LDC bridges the gap between actual tax liability and higher TDS rates.
Understanding the LDC
Business leaders involved in NRI property transactions must grasp the concept of the LDC. It allows NRIs to reduce or eliminate excessive TDS deductions.
Application Process
NRIs should apply for the LDC using Form 13 available on the government's tax portal (Traces). Supporting documents include agreements, passport copies, property details, and tax records.
Review by Assessing Officer
After submission, an Assessing Officer (AO) reviews the application. Additional documentation may be requested before issuing the LDC.
Issuance of Certificate
Upon approval, the AO issues the Lower Deduction Certificate specifying the applicable TDS rate. NRIs can then download it from the Income Tax Portal.
Validity of LDC
The LDC is valid for a specific fiscal year, until the end of that financial year, unless revoked by the AO.
Conclusion
The LDC is a valuable tool for NRIs selling property in India. It ensures that TDS is deducted at a rate closer to their actual capital gains tax liability. This allows NRIs to access a significant portion of the sale proceeds immediately, avoiding lengthy refund processes. The application process involves Form 13 and supporting documents, with a typical processing time of 3 to 6 weeks. Business leaders should consider the LDC's applicability based on specific circumstances and seek professional guidance.
FAQ
Why is it important to apply for an LDC as an NRI when selling property in India?
Applying for an LDC reduces excessive TDS deductions, enabling NRIs to receive a larger portion of sale proceeds upfront and avoid lengthy refund processes.
How can an NRI apply for an LDC under Section 197?
What documents are needed for the LDC application?
How long does LDC processing take?
Is the LDC valid indefinitely?
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