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.
