Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Monday, November 25, 2013

TDS on Purchase of Property from NRI

In case of  NRI (Non-Residents of India), TDS is explained as per section 195 of the Income Tax act  which says  any person responsible for paying a sum 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 .

Therefore, the buyer of the property needs to deduct tax.

The important phrase in the section is “sum chargeable under the provisions of the Act”. This means that whatever be the amount paid, buyer has to deduct tax on that sum, not the profit earned by the seller on it. In other words, buyer cannot compute the Long term or short term capital gain and deduct the tax due on it.  The liability to deduct tax is on the gross amount paid.

As per Sec 195, tax has to be deducted at the ‘rates in force’. ‘Rates in force’ is defined u/s 2(37A)(iii) as the rate specified in the Finance Act. Currently the effective rate for long term capital gains is 20% + surcharge (if applicable) + E. Cess and SHE. Cess.

If there is no capital gain at all in the transaction or the tax payable on capital gain is less that the TDS deducted, then the payer can approach the assessing officer and get a certificate of lower or nil deduction of TDS. This is provided in subsection (2) of Section 195. Alternatively, u/s 195(3), payee also can approach the AO (Assessing Office) and get the certificate. If such certificate is not obtained, the payer has to deduct tax, even in case where the property is sold at a loss.

There are certain instances under section 54 in which NRIs can get a waiver of TDS. One such case would be if the NRI is planning to reinvest the capital gains of the property in another property or in tax exempt bonds. In such cases, the NRI will be exempt from tax in India, and no TDS will be deducted either.

NRIs selling their properties can apply to the income tax authorities for a tax exemption certificate under section 195 of the Income Tax Act. They must make this application in the same jurisdiction that their PAN (permanent account number) belongs to and will be required to show proof of reinvestment of capital gains. If the NRI is planning to buy another house, the allotment letter or payment receipt will need to be produced; if capital gains bonds are chosen instead, an affidavit to this effect will have to be prepared. Usually, buyers withhold the last instalment of payment until the NRI produces a certificate of exemption. A NRI has up to two years from the date of sale to invest in another property, or up to six months to invest in bonds.

The purchaser, before deducting income tax from such payment, should apply for and get a Tax deduction Account Number (TAN) as per section 203A of the Income Tax Act 1961. He must collect the Permanent Account Number (PAN) of the said Non-resident Indian before deducting the tax. The buyer should deposit, (by using challan for payment of TDS), the income tax so deducted, with the government (through banks authorized to collect direct taxes) within seven days from the end of the month in which such tax is deducted and then file the TDS return.

The new provision requires TDS to be deducted at 1% of the price being paid by the purchaser of an immovable property, irrespective of the quantum of capital gains. However, where the seller is a non-resident, these provisions would not apply, and the earlier TDS provisions applicable to purchase of property from non-residents would continue to be applicable.

21 comments:

  1. It is mentioned here that... "whatever be the amount paid, buyer has to deduct tax on that sum, not the profit earned by the seller on it. In other words, buyer cannot compute the Long term or short term capital gain and deduct the tax due on it. The liability to deduct tax is on the gross amount paid."

    But as per my knowledge the tax is calculated by deducting cost of acquisition from sale price along with deduction of the improvements, brokerage cost, travelling expenditure for the purpose of finding out a buyer. This is also mentioned here: http://www.moneycontrol.com/news/tax/find-out-tax-details-for-nri-property-salepurchase_940165-0.html

    I wonder how these two statements are varying? Or I am mistaking somewhere. Please help.

    - Amandeep Singh

    ReplyDelete
  2. I am buying an apartment from a NRI/PIO (owner) who has surrendered Indian Passport but still has the Indian PAN card. The apartment is an allotment to the current owner and it is not yet registered in his name. Now, I assume TDS I need to deduct for this purchase is 20% instead of 1% unless the Owner reinvests the income again in certain areas in India. The owner is asking me to deduct only TDS of 1% as they will provide a declaration/ affidavit on his commitment on reinvesting the income. Can someone confirm whether just an affidavit will work or what shall be the correct TDS/ process to submit it?

    Thanks in advance

    ReplyDelete
    Replies
    1. Affidavit will not work, you need to obtain lower deduction certificate for deducting at lesser rate

      Delete
  3. Do i need to compulsorily have TAN no in case i am buying property from NRI Seller, to deposit TDS ? And do i need to file TDS return too ? Cant i just pay tax through Form 26QB without having any TAN No?

    ReplyDelete
    Replies
    1. Yes you need to compulsorily have TAN. 26QB is not applicable to you. It is applicable only to resident transferor

      Delete
  4. This comment has been removed by the author.

    ReplyDelete
  5. Nice info!!! Blog is really informative. Thanks for the information you have provided. In present days, the demand for real estate. It is helpful for the buyers who are looking for Buy Properties in Hyderabad for Sale Buy properties in Bangalore for Sale etc.

    ReplyDelete
  6. in case if the seller (NRI) produces a certificate of Nil TDS than also a buyer must habe/apply for TAN? pls confirm..Thanks!

    ReplyDelete
  7. NRI seller has flat in joint name with his wife.

    1. Can we deposit TDS @ 20.6% against PAN of Husband ?
    2. NRI Seller has now become Citizen of US. Will it make any Difference.
    3. Do we need to ensure that payment is made to his NRE or NRO Account.

    Thanks....Dinesh Verma

    ReplyDelete
  8. NRI seller has flat in joint name with his wife.

    1. Can we deposit TDS @ 20.6% against PAN of Husband ?
    2. NRI Seller has now become Citizen of US. Will it make any Difference.
    3. Do we need to ensure that payment is made to his NRE or NRO Account.

    Thanks....Dinesh Verma

    ReplyDelete
  9. NRI Purchase property above 5000000 TDS applicable & Rate applicable and return

    ReplyDelete
  10. Sir, Can anybody help with appropriate form to apply for no tax deduction on Capital Gains in case of NRI? Thanks.

    ReplyDelete
  11. I am puchasing a property from NRI. I have TAN no where i will submit the tds amount in which challan no.

    ReplyDelete
  12. This comment has been removed by the author.

    ReplyDelete
  13. I am Non Resident Indian and have bought property in India worth more that 50 Lakhs , Do i need to pay the TDS of 1% ?? Please confirm .

    I see a policy if NRI is selling a property in India but don't see any information on NRI buying a property in India.

    Please advise.

    ReplyDelete
  14. This is very useful post. Thanks for sharing with us. Good to know
    Low budget flats for sale in Chennai

    ReplyDelete
  15. How to confirm if person is nri or not for tds

    ReplyDelete
  16. How to confirm if person is nri or no..?

    ReplyDelete
  17. Seller has PAN. Does Section 194IA and 194LA apply to NRI ? This is confusing. "The new provision requires TDS to be deducted at 1% of the price being paid by the purchaser of an immovable property, irrespective of the quantum of capital gains. However, where the seller is a non-resident, these provisions would not apply, and the earlier TDS provisions applicable to purchase of property from non-residents would continue to be applicable."

    ReplyDelete
  18. I need some clarification on the above subject
    I wish to purchase a property from a N.R.I.I am told that this falls u/s 195 so tds will have to be deducted as per that section.I have applied for a TAN for this purpose.I need to know which form number /challan number do I fill up for making the payment.Also if its challan number 281 there is no provision to mention any property details or sellers details.Where do these details have to be mentioned.What would be the next step after deduction of tds.Please clarify asap.

    ReplyDelete