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.

Thursday, May 7, 2015

TDS Rules on Sale of Property by Resident and Non Resident Indians

TDS rules on sale of property by a Non Resident Indian are different as compared to if the sale of property by a Resident Indian.
The major differences can be categorized:
1.    Tax Rate, Threshold limit and procedure for payment of TDS

2.     Provision for getting permission for lower/nil TDS

The tax which has to be deducted before making the payment by buyer to seller of the property and has to be deposited in Government account is called TDS and the responsibility lies on Buyer of the property. So Buyer of the property has to be careful to take care of law and to avoid defaults as the buyer can be penalized for any defaults in payment of withholding tax or TDS.
Tax Rate, Threshold limit and procedure for payment of TDS in case
NRI (Non-Residents of India) selling the property:
 In case a resident Indian is buying property from Non- resident Indian 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 . There is no threshold limit for transaction so TDS has to be deducted 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.
Form 26QB is not applicable in case of Non – Resident Indian selling property.

Tax Rate, Threshold limit and procedure for payment of TDS in case
Resident Indian selling the property:
In case of Resident Indian selling the property Section 194-1A for TDS on sale of property is applicable. Section 194-1A is not applicable to the property owned by non-resident Indians. The rate of TDS is only 1% as per section 194-1A but rate as per Section 195 is 20%.
The Buyer of Immovable Property (Other than rural agricultural land) is required to deduct tax on the rates applicable from the sales consideration payable to RESIDENT Transferor provided the sales consideration is equal to or more than Rs.50 Lacs.
Section 194IA which is applicable for property transaction between Resident Indians the threshold limit is Rs. 50 Lacs i.e Sale consideration equals to or exceeding Rs.50Lacs.
Tax  is to be deducted at Source at the time of payment or at the time of giving credit to transferor, whichever is earlier. So at the time of sale of property the tax can be deducted in installments or lump sum as per the date of agreement by the 7th of the subsequent month in which agreement is entered into for payment in installments or in lump sum but as per the date of payment.  If any advance payment is being made, then tax is to be deducted at the time of such payment.  If the payment is made in installments then tax is to be deducted on payment of each installment.
The Tax is deductible @ 1% of the consideration payable to resident transferor [if valid PAN is quoted]. If the seller does not provide valid PAN, then the tax is deductible @ 20%.The tax deducted is to be deposited by challan cum statement on Form 26QB. 
In case the property is held by joint owners, the provisions of Sec 194IA will still be applicable because the threshold limit of Rs. 50 Lacs is property-wise and not transferee-wise. Permanent Account Number (PAN) of the seller as well as buyer should be mandatorily furnished in the online Form for furnishing information regarding the sale transaction. If the PAN of seller is not filled or wrongly filled, then TDS would be deducted @20%.

Provision for getting permission for lower/nil TDS
The Rate of TDS is 20% whether there is any capital gain on sale of property or not. In case there is capital gain no body minds TDS is deducted at 20% rate of the gross transaction value. TDS is to be deducted at the rate of 20% plus E.Cess and SHE Cess which comes to the rate of 20.6% on gross transaction value if sale price is less than 1 Crore and  in case the sale price is above Rs.1 Crore at the rate of 22.66% including Surcharge,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.

The 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 installment 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.
Now there are three possibilities in case of NRI Seller:
i)             In case NRI selling the property where Capital Loss is there or Capital Gain is Zero on sale of Property then NRI can apply for NILTax Deduction Certificate from Income Tax Department India.
ii)           In case NRI while selling the property wants to pay the tax but tax liability is less than TDS u/s 195 then NRI can apply for Lower tax Deduction Certificate and based on the cost of investment in property made in earlier years and on the basis of tax saving investment he is willing to make out of the sale consideration Income Tax officer may issue a lower tax deduction certificate and rate applicable will be calculated by the officer in Income Tax Department in India.

iii)       In case NRI seller is willing to make investment in India by buying property or building a house in India then on the basis of Facts and proof of Investment in India the NRI Seller can apply for Tax Exemption Certificate.


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