Non-resident Indians or NRI is the term used for Indian citizens who have an Indian passport but are residing temporarily abroad. They could be out of the country because they were assigned temporarily overseas, taking up studies abroad, or completing citizenship requirements in another country. Nonetheless, they are still considered Indian citizens who make up a big number in India’s wealthy community.
NRIs are known for their wealth and their real estate ownership. They are known for owning many properties including ancestral homes passed onto them by their relatives in their native provinces. Aside from this, they continuously buy properties in the market using their self-acquired wealth.
Because of their involvement in the real estate industry, NRIs are looking into buying and selling their properties to fellow NRIs and Indian residents in general. If you find yourself interested in their properties, here’s what you need to know and do before you close the deal.
Apply for a PAN card
A PAN card is a requirement for any Indian taxpayer and any foreigner who does business transactions in the country. In the same way, this is the first document you should have when you are buying a property that costs more than Rs 10 Lakh. If you don’t have a PAN card, then you should apply for one under your name so that your sale transaction will go smoothly.
It’s not just the actual sale that requires a PAN card. In fact, when you need to change the title to be under your name, you would need to present a PAN card.
Apply for a TAN
TAN is short for Tax Deduction Account Number. This number is one of the requirements when you are purchasing an immovable property from an NRI; however, if you’re buying from an Indian resident, a TAN is not necessarily required. You can get one along with applying for a PAN card. You just need to pass a fully filled out Form 49B. The TAN is needed when you are asked about the Tax Deducted at Source (TDS).
Know the TDS and have it documented
The TDS differs based on who owns the properties. There are different regulations for properties owned by NRIs and Indian residents. If you’re buying from an NRI, the relevant regulations can be found under Section 195 of the Income Tax Act.
Another important thing to remember is that you should deduct the TDS on the sale of the property and have it documented. This should be clearly stated on the Deed of Sale between you and the NRI, the seller of the property.
Ask for a lower TDS deduction
There are times when the TDS might be too high for you, the buyer. When this happens, you are free to consult an income tax officer and ask whether it is possible to lower the TDS deduction. Your income tax officer will then try to make adjustments and issue a Certificate of Lower Deduction. This certificate will be the new basis for the rate of the TDS on the NRI’s property. Tip: If you find the TDS reasonable, there is no harm in asking an income tax lawyer if the TDS deduction can still be lowered.
Submit a TDS Return and TDS Certificate
Now that you’ve settled with a rate for the TDS and it has been properly documented in the Deed of Sale, you should give a TDS Certificate or a Certificate of Deduction of Tax to the NRI seller. This is also called Form 16A. This document is important and you have to give this to the seller because they are supposed to receive it 15 days from the date when the TDS returns are due. On the other hand, you would have to fill out and pass the TDS Returns form.
By now, you might be thinking how difficult and long a process buying a property from an NRI is. People who have gone through this process will tell you that it doesn’t get any easier even if you’ve done it a lot of times. There are just a lot of forms and processes you have to go through before buying the property.
It is definitely a lot easier to buy from an Indian resident, but at least the regulations and the legal processes you will go through will make your transaction more secure and valid in terms of the law. Moreover, this could be a learning experience for you because you would know more about Indian laws in real estate buying and selling.