Buying property from NRI, Tax deduction under section 195, TAN to be applied by buyer, TDS certificate, returns and other provisions.

Central Board of Direct Taxes has introduced special rates of TDS deduction for purchase of property from Non Resident Indians. But in several cases it is observed that buyer of the property only deducts 1% TDS, which is violation of law. Tax law regarding purchase of property from NRI is complex and needs to be followed strictly.

 

 

Deduction of TDS on payment to Non Resident Indian is as per Section 195 of Income tax Act. Provisions under section 195 of Income tax Act are as under:

"195. Other sums
(1) Any person responsible for paying to a non- resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head" Salaries"]) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income- tax thereon at the rates in force: Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode.] Explanation.- For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called" Interest Payable Account" or" Suspense Account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.]

  


(2) Where the person responsible for paying any such sum chargeable under this Act (other than ] interest on securities, ] and


2. Substituted by the Finance Act, 1987, w. e. f. 1- 6- 1987. Prior to the substitution, subsection (1), as amended by the Finance Act, 1965, w. e. f. 1- 4- 1965 and the Finance Act, 1975, w. e. f. 1- 4- 1975, read as under:" 195. Other sums.- (1) Any person responsible for paying to a non- resident, not being a company, or to a company which is neither an Indian company nor a company which has made the prescribed arrangements for the declaration and payment of dividends within India any interest, not being" Interest on securities", or any other sum, not being dividends, chargeable under the provisions of this Act, shall, at the time of payment unless he is himself liable to pay any income- tax thereon as an agent, deduct income- tax thereon at the rates in force: Provided that nothing in this sub- section shall apply to any payment made in the course of transactions in respect of which a person responsible for the payments is deemed under the proviso to sub- section (1) of section 163 not to be an agent of the payee."

3. The words" or dividends" omitted by the Finance (No. 2) Act, 1991, w. e. f. 1- 10- 1991

5. Inserted by the Direct Tax Laws (Second Amendment) Act, 1989, w. r. e. f. 1- 6- 1987.

6. The words" or dividends" omitted by the Finance Act, 1976, w.. e. f. 1- 6- 1976.

7. The words", dividend" omitted by the Finance (No. 2) Act, 1991, w. e. f. 1- 10- 1991
salary) to a non- resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application 1 to the 2 Assessing] Officer to determine, 3 by general or special order], the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub- section (1) only on that proportion of the sum which is so chargeable: 4 Omitted by the Finance (No. 2) Act, 1991 , w. e. f. 1- 10- 1991 ]

(3) 5 Subject to rules made under sub- section (5), any person entitled to receive any interest or other sum on which income- tax has to be deducted under sub- section (1) may make an application in the prescribed form to the 6 Assessing] Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that subsection, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub- section (1).

(4) A certificate granted under sub- section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the 7 Assessing] Officer before the expiry of such period, till such cancellation.

(5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith."
  

 

TDS Rates for purchase of property from NRI

In case of long term capital gain (Property is selling after 2 years)

The buyer is responsible to deduct and deposit at different rates on the basis of sale value.

Particulars

Sale Value

  Below Rs. 50 Lakhs Rs. 50 Lakhs to 1 Crore Above Rs. 1 Crore
Long Term Capital Gain Tax 20% 20% 20%
Surcharge - 10% 15%
Total Including Surcharge 20% 22% 23%
Education Cess (w.e.f.1.4.18) 4% 4% 4%
Total TDS 20.80% 22.88% 23.92%


TDS in case of short term capital gain (Property is selling before completion of 2 years)
In case of short term capital gain the TDS should be deducted as per income tax slab.

Deduction of Tax should be made under section 195 of the Income tax Act
If the seller is a Non Resident Indian tax should be deducted under Section 195 of the Income Tax Act.

Tax should be deducted on capital gain or the Sale value
If the seller approaches the tax official concerned, gets the calculation done and produces a certificate proving the same TDS can be deducted on capital gain only. In other cases buyer are supposed to deduct TDS on the entire transaction value.


 

 

Filing TDS Return and issuing form No. 16A
The buyer is also responsible for filing TDS return and issue Form 16A to the seller after depositing TDS.


Requirement of Tax Deduction Account Number (TAN)
The buyer should apply for a TAN if do not have it. Since tax is deducted under section 195 of Income Tax Act in case of payment NRI TAN is mandatory. If there are more than one buyer, all of them, who makes payment must have TAN.

 

Deposit the money in NRO/NRE/FCNR accounts only

This matter should be settled while you are still in the negotiating stage. To make it convenient for them, an NRI seller might ask you to deposit the sale proceeds in his Indian saving bank account. This is where you should put your foot down and say you would go ahead with the deal only if they provided you details of their Non-Resident External (NRE) or a Non-Resident Ordinary (NRO) or Foreign Currency Non-Repatriable (FCNR) account. These are the accounts where you should be depositing the money to steer clear of any legal troubles arising in future. Also, mention the account details clearly in your sale deed document.

 

Avoid payment to Special Power of Attorney Holder
Do not pay amount of sale proceeds to the special power of attorney holder. The amount should be paid to the property owner.

 


 

PAN Number of Seller
It is important that seller of property should also have Income Tax Permanent Account Number.

Presence of seller of Property

If the seller is present, it would be better. However, if the seller has given Special Power of Attorney (SPoA) to someone to carry out the deal, the transaction can be done.

 
Payment in case of jointly owned property
In case of jointly owned property, payment should be made to all owners separately. Making the entire payment to one party might lead to litigation in future.

 

Responsibility of NRI sellers while selling property
- Get certificate from Income tax officer for computation of capital gain for deduction of tax at lower rate. The Income Tax officer may take around 30days for that to verify all documents

- If the seller is not able to get the certificate, TDS should be deducted on complete amount

- Seller should collect from No. 16A from the Buyer

- The seller can use capital gain tax saving options through reinvestment

 

 

Responsibility of Buyer of Property from NRI

- Deduct tax at the time of each payment. Not at the time of registration

- Deposit TDS with income tax department before due date. In case of late payment of interest for the period of late payment should also be deposited.

- File TDS return with income tax department. Late filing of return will attract penalty of Rs. 200 per day. The Income Tax officer can levy penalty upto Rs. 1 lakh

- If the property bought through taking loan from bank, TDS should be deducted when the payment is made, not at the time of payment of EMI.

 

TDS Return Form to be submitted after deduction of tax

TDS forms to be submitted Type of Deductee
Form 27Q Deduction made from payment to NRI

 

Due Dates for filing TDS Returns

Quarter Ending Due date to file return by all deductors
30th June 31st July
30th September 31st October
31st December 31st January
31st March 31st May



 

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