Under Section 195 of the Income-tax Act, 1961 (ITA), when you have bought the property from a non-resident Indian (NRI) then you are required to deduct tax (TDS).
The tax should be deducted while performing any payment to NRI for buying the property. The same would indeed get applied for the case when the advance would be furnished. A buyer is mandated to deposit the TDS with the income tax dept.
While buying the property from the NRI, TDS would get deducted from the sale value and the balance amount must be obligated to be furnished to the NRI seller. On the tax deduction, there is no threshold limit. Towards buying the property from the resident there shall be no tax deducted when the sale value is less than Rs 50 lakh (section 194IA).
What is the Method of Computing the Capital Gains on the Property Sale?
The property which is owned by the NRI is treated as a capital asset, which could be a long-term capital asset or short-term capital asset. A long-term capital gain (LTCG) tax shall be imposed when the property is sold after a duration of 2 years from the date it was held. when the property is being owned for less than 2 years then the same draw short-term capital gains (STCG) tax.
The liable TDS rates on the sale of NRI-owned property would be:
- On the property sale the LTCG tax held for exceeding 2 years: 20%.
- STCG tax upon property sale which is owned for less than 2 years: As per the Income tax slab rates for NRIs.
Along with that the surcharges and cess should indeed be applicable to the capital gains.
Facts of TAN Number, TDS Payment and Return
The buyer of the property is obligated to comply with Section 195 of the ITA and make additional mandatory reporting compliances as below:
- Received TAN: Towards TDS deduction, one is obligated to receive the tax Deduction and Collection Account Number (TAN No.) when purchasing the property from NRI.
- TDS Deduction: If the TDS has been deducted by the buyer, then you need to deposit the TDS before the Income Tax department within 7 days from the due date of the month when the deduction would get started.
- TDS Deposit: TDS should be deposited through Challan No./ITNS 281. e-Payment of TDS could get started online via the following website: e-Payment for TIN (egov-nsdl.com).
- TDS Return Filing: Post-tax payment, the purchaser is mandated to furnish the TDS return. The same is obligated to file in Form No 27Q specified by the income tax dept. A separate Form No 27Q is mandated to get submitted towards every quarter where TDS has been deducted. Within 31 days from the quarter end when the TDS gets deducted, the return is mandated to get filed to the government.
- Issue Form No 16A: As a purchaser, needed to furnish Form No. 16A to the NRI who is selling the property.
Nil/ Lesser TDS Deductions
NRI sellers could claim the utility of tax deductions at lesser rates to the income tax jurisdictional assessing officer. A resident buyer of the property made the application beneath section 195(2) of the Income Tax Act for revealing the part of the income applicable for the deduction of tax.
The NRI seller could indeed apply in Form 13 to obtain a lower/ Nil TDS (under Section 197) for such receipts.
A certificate shall be issued by the assessing officer which specified the tax deduction amount, on which the buyer is obligated to deduct TDS on the total sale consideration. For finding out the tax amount deductible, if the buyer or NRI seller does not file any application then the tax is required to be deducted on the complete sale consideration of the property.
