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.
