A giant structure of the do’s and don’ts is well build-up for a Non-Resident Indian (NRI) who wants to sell his property to a resident in India. In terms of selling, the deal between an NRI seller and a resident buyer goes through a lot of formalities. Both parties have to be extra vigilant while making a sale transaction.
There are instances where a buyer has a misconception in his mind resulting in a severe non-compliance and an NRI seller land into the state of liquidity crunch due to lack of awareness.
Here is the time to throw some light on:
- The responsibilities of the resident buyer while purchasing the property from an NRI seller.
- What a Non-Resident Indian must do to escape ‘Liquidity Crunch’?
Latest Update in Property Transfer
18th July 2022
- Delhi Income Tax Appellate Tribunal (ITAT) bench-headed by accountant member Mr Anil Chaturvedi and judicial member Shri N.K. Choudhry has ruled that income tax deduction as per section 54 EC is relevant within a calendar of six months from the property transfer date and not within 180 days
The Seller Needs Liquidity Planning (NRI)
NRI while selling a property looks for another better opportunity to invest, therefore planning the cash flow is a must. Planning liquidity also means considering the taxes which will impact the sales. TDS rate on selling a property is 20%, which means on the purchase of property worth Rs. 10 Lacs, the NRI seller will get Rs. 8 Lacs and rest 2 Lacs will be deducted as TDS.
For Example,
The sale consideration you are getting is Rs. 1 Crore on the property you obtained in Rs. 80 Lacs, which means you are in profit of Rs. 20 Lacs (Capital Gain). The TDS deducted on Rs 20 Lacs is 4 Lacs (20% of 20 Lacs). So you are qualified to claim a refund of Rs 16 Lacs on filing the Income Tax Return.
Mostly, the tax on the sale of the property is computed on the basis of Capital Gains which is less than 5% of property’s Sale Consideration.
To escape such higher TDS deduction (20%) and after that claiming of refunds, the seller shall assess his capital gains for which he can compute his tax liabilities. In the case of tax applicability on property’s sale consideration, the seller may appeal for the Lower Deduction Certificate via Form 13 available on the TRACES portal.
Looking at the situation, the I-T Department will issue a certificate asking the buyer to deduct TDS on a lower rate.
Responsibilities of a Resident Buyer
Rumours were that buyers have to deduct 1% TDS and need not get any Tax deduction Account Number (TAN), which is a completely false statement.
The TDS rate is designated by Section 195 of the Income Tax Act, the extract for which is as follows
“Any person responsible for paying to a non resident (company or non company) any sum which is chargeable under the provisions of the Act, shall at the time of crediting such income to the account of the payee or at the time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate in force.”
Generally, the prescribed TDS rate is 20% of the Sale Consideration, but can be lowered by acquiring the certificate of lowering the deduction issued by the Income Tax Department.
Mentioned in Section 195 of the Income Tax Act, the buyer is responsible for acquiring the TAN in Form 49B. TAN application can be submitted via tin-nsdl website.
Forwarding the TDS to respective Authority – After TDS deduction from sellers account, the buyer is liable to forward the deduction to the respective authorities by the 7th of the following month. On depositing the TDS, the buyer will generate a payment challan which he has to reflect back to the seller.
In the Case of Non-Compliance of TDS
TDS not deducted – Interest is charged at the rate of 1% on non-deduction of TDS or on delay in payment from the day it was supposed to get deducted till the date it is deducted.
- Penalties – Mentioned in section 271C of IT Act, buyer deemed faulty is liable to pay the sum announced by Joint Commissioner which is double the amount of tax the buyer failed to deduct.
TDS not paid – The buyer is liable for 1.5% interest per month for not paying TDS on time. The late fine is applicable from the date on which it was deducted till the date of payment.
- Penalties – This is in accordance with Section 221, the Assessing Officer may collar you for a penalty on failure to pay applicable TDS. Authorities will seek answers for not paying TDS, and if unsatisfied with the reply will levy the prescribed penalty.
Read Also: All About TDS Return Forms 24Q 26Q 27Q 27EQ with Due Dates
TDS Return Filing – It is the responsibility of the buyer to present quarterly TDS returns in Form 27Q adjoining the payment challans and providing the PAN of the Seller. On failure to do so, he is liable for the payment of Rs 100 per day of delay as a penalty.
HI TEAM, I AM INTERESTED IN BUYING PROPERTY FROM NRI BUT NRI SELLER IS ASKING MY TAN TO APPLY FORM 13, AND TO AVAIL LOWER/NIL TAX DEDUCTION CERTIFICATE, IS IT CORRECT TO GIVE MY TAN.?? PLEASE SUGGEST ON THIS.