How NRIs are taxed on property sale gains

I am an NRI having a flat in Pune, which I want to sell. My father has the general power of attorney. What is the procedure I should follow? What about income tax on capital gain? In which account the cheque needs to be deposited--NRI/NRO/savings account?

— Name withheld on request

Gains on the sale of a flat shall be taxable in your hands and you must file an income tax return in India to report them. The sale proceeds paid to you shall be subject to TDS. 20% TDS will be deducted if the property has been held for more than 2 years; otherwise the rate of TDS is 30%. You can claim this TDS by filing an income tax return. In case you plan to reinvest the gains, you may obtain a low/nil TDS certificate and give it to the buyer so that TDS is deducted as required.

Taxation for capital gains for NRIs and residents is nearly identical except for the TDS as mentioned above. You can deposit the sale proceeds in your NRO account.

In case of the landlord being an NRI, it’s the tenant’s responsibility to deduct TDS on rent and deposit it with the income tax department. Otherwise, there’s provision for penalty. But what if the landlord/house owner’s NRI status is hidden from the tenant and hence tenant has not deducted any TDS on rent, but landlord himself has deposited TDS as advance tax; what shall be the punishment for tenant as well as NRI landlord?

— Dolly Moga

The onus of deducting and depositing the TDS shall rest on the tenant. The tenant may obtain a certificate that specifies the residential status of the landlord. The tax must be deducted from the rent payable at the rate of 31.2%. This tax rate is applicable unless the NRI landlord has a certificate stating that his total income from India is below the exemption limit. If you fail to deduct tax from the rent paid to an NRI landlord, you may attract a penalty equal to the tax not deducted as per Section 271C of the Income Tax Act. There are severe penalties for not depositing the TDS deducted. Even though the NRI may have deposited advance tax, the tenant must deduct TDS from the rent paid.

Archit Gupta is founder and CEO at Clear.in.