The Necessity of TAN in Purchasing Properties Owned By NRIs

Explainer May 18, 2022

Tax Deduction Account Number or Tax Collection Account Number (TAN) is a 10 digit alphanumeric number issued by the Income Tax Department. The TAN is to be obtained by an individual responsible for deducting tax at source (TDS) or collecting tax at source (TCS) [1].

During the transaction of a property, the buyer is required to deduct a percentage of the full value of the property and deposit the same to the Income Tax Department as TDS, or Tax Deducted at Source. The remaining amount is received by the seller. TDS is calculated differently according to the residential status of the seller [2].

If the seller of the property is a resident of India, a flat rate of 1% is charged as TDS on the transaction for all properties worth over INR 50 lakhs [3]. In addition to a flat rate, the buyer is also not mandatorily required to hold a TAN.

However, in case the seller of the property is not a resident of the country, the buyer would need to go through a few additional steps in order to complete the transaction. For one, the buyer would need to have a TAN, without which, the buyer would not be able to fulfil his or her TDS responsibilities. Additionally, a differentially higher rate of the property value would have to be accounted for as TDS based on the two factors: the value of the property,  and the time period for which it has been under the possession of the seller.

Nature of Capital Gains

Description

Rate of TDS

Long Term Capital Gains

Property Held for  >  2 Years

20%

Short Term Capital Gains

Property Held for < 2 Years

Income Tax Slab Rate of Seller

Data sourced from Chartered Club [4]

The above surcharge and cess calculation can be extended to compute the needed TDS for Short Term Capital gains as well.

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[1]https://www.incometaxindia.gov.in/tutorials/23. tan.pdf

[2]https://www.nobroker.in/blog/tds-on-sale-of-property-by-nri/

[3]https://economictimes.indiatimes.com/wealth/tax/purchased-property-worth-more-than-rs-50-lakh-heres-how-to-deposit-tds-amount/articleshow/87391151.cms

[4]https://www.charteredclub.com/tds-property-purchase-nri/


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