TDS implications on purchase of property from Non resident of India (NRI)

TDS implications on purchase of property from Non resident of India (NRI)

There is always confusion on the implications of the NRIs. Who wants to sell property in India by India. NRI, who wants to sell the property which is situated in India, has to pay a certain amount of taxes on capital gains. This tax is paid based on whether it's short-term or long-term capital gains.

Now, let's look into what it means by short and long-term capital gains. When a property is sold after two years from the date it was owned, then it is a long-term capital gain. And when a property is sold within less than two years, it's a short-term capital gain. This is not it. The tax implications are also applicable if the property is inherited.

If it is a case of property inheritance, then the selling party must consider the date of ownership and must calculate the years, whether falling into long and short term. In such a case, property cost to the previous owner.

We will look further if a Resident buys an in-movable property from a Non-resident. Then the buyer is responsible for deducting a certain amount of tax and paying the balance amount to the seller. The buyer is also responsible for filing TDS return filing, issuance of TDS certificate.

This article will describe the TDS provision applicable in the buying ( Resident) of property from Seller(Non-resident)

Applications Of Tds Rate

TDS is to be done on the provisions of section 195.  

If the property is sold after two years from the date it was owned, then it is a long-term capital gain. TDS deduction happens at the rate of 20%. Effective TDS rates are as follows.

 

Particulars Income less than INR 50 LAKH Income from 50lakh to 1 crore  Income more than 1 crore
Long term capital gains TAX RATE 20% 20% 20%
Add surcharge 0% 10%on above rate 15% on above rate
Total tax including surcharge 20% 22% (20+2)%

23%

(20+3)%

Add health and education 4% 4% on above rate 4% on above rate
Effective TDS rate 20.80% 22.88%

23.92%

 


However, Please be aware of the Marginal Relief factor when calculating final tax liability in the case of the seller of property.

  • When a property is sold within less than two years, then it's a short-term capital gain. Then the TDS is deducted at the applicable income tax rate. It is based on the total taxable income by Non-resident.

Deduction Of Lower Rates Tds

Deduction of a lower TDS rate is also applicable while buying any property from NRI( Seller). There are the following steps to claim the lower TDS deduction.

  • The non-residents ( Seller) have to apply for a lower TDS deduction from the officer of Income Tax.
  • The Assessing Officer shall issue a Lower rate TDS deduction certificate within a0 days.
  • Based on the Certificate, the buyer has to subtract the TDS.

Format Of Lower Tax Deduction Certificate 

The lower tax deduction of TDS is under section 197. This contains TAN/ PAN number, Sr No, TAN/ PAN Name, certificate number, valid date ( as per original certificate), valid till( cancellation date), certificate rate, certificate number.

Tds Deduction On Amount Is Below.

Suppose a resident buys property from a non-resident. Then TDS is to be deducted from the amount in the following situations.

  • It is to be done when a lower deduction certificate has been issued by income tax.
  • If the income tax department has not issued a lower tax deduction certificate.
  • If the certificate of lower tax deduction has been obtained, the buyer must deduct TDS at the capital gain amount. If not, then deduction of the TDS would happen at the entire transaction value. So, it is better to obtain a lower deduction certificate from an income tax officer to avoid extra deductions.

Procedure To Issue Lower Tax Deduction

Here are the following steps by which one can apply for obtaining a Lower tax deduction certificate for TDS from an Income tax officer:

  • Seller (Non-resident) is required to apply for computation of capital gain from income tax. 
  • The income tax department will compute the on the basis documents
  • The capital gain calculated by the Income Tax Officer will inform the seller by way of a certificate.
  • Seller (non-resident) is required to submit the certificate of lower tax deduction to the buyer ( resident)
  • Based on the certificate, the buyer will deduct the TDS.

Time Of Tax Deduction

The buyer ( resident) is required to deduct the TDS at the early of credit of income or payment. The resident is also required to deduct the TDS at the advance payment.

Submission Of TDS With The Government

The buyer has to submit the TDS to the government within 7 days from the end of the month from the date TDS has been deducted. Also, residents (Buyers) are required to submit TDS by challan no.

TDS Return

TDS return should be deposited in the form of 27Q. It is to be filed in all the quarters where tax has been deducted. Now let’s look at the due dates for this:

TDS Certificate

  • April- June -----31 July
  • July- September ----- 31 October
  • Oct – Dec. ----- 31 January
  • Jan – March ----- 31 May

The buyer (Resident) is required to issue the TDS certificate to the seller(non-resident) in the form of 16 A. The due dates for this are as follow: 

  • April- June ---- 15 August
  • July- Sept----- 15 Sept
  • Oct-Dec ----- 15 February
  • Jan – March ----- 15 June

Late Fee Penalty

Section 271c penalty from non-deduction or non-payment of TDS If the buyers failed to deposit TDS (Partly or Fully) with the Government, then the buyer would be liable to the penalty to  the amount not deducted or not payed

Section 234E Late fee or non-filing TDS return under section 234E the buyer is required to file TDS return within the due date. If he fails to do so, then he would be liable to a late fee of 200 INR per day.

So, there are some implications if you are looking to buy a property from a Non-resident. This would help you to understand the steps and credentials for the smooth process of buying. 

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