Under the Income Tax Act, 1961 as per the TDS provisions when an NRI purchase a property, the buyer is responsible for deducting the TDS and deposit to the government. The applicable TDS shall be deposit to the government and the rest the buyer pays to the seller of property. Those buyers are required to deduct TDS are also required to comply with the relevant compliances like TDS payment, TDS return filing, and issuance of TDS certificate.
It is mandatory for the buyer of the property whose seller is non- resident to have Tax Deduction and Collection Account Number (TAN).
TDS deduction for a different type of sellers:-
It is important to note that the deduction of TDS depends upon the seller of property. In other words, the rate of deduction of TDS will be different for Residents and Non- Resident Indians.
Under Section 194-IA, the rate of TDS deduction for resident sellers is 1% only when the consideration is more than 50 lakhs which is amended now that is, 0.75% from 1% from 14 May 2020 to 31 March 2021. In other words, if the payment of property is more than 50 lakhs then, only TDS shall be deducted not otherwise.
Under Section 195, the rate of TDS deduction is 20% for Long Term Capital Gain and Short Term Capital Gain TDS shall deduct as per the slab rates only.
Sale of property by NRI:-
If a resident buy a property from the NRI then, the TDS shall deduct as follows:-
1.TDS shall be deducted as per the provisions of section 195 of the Income Tax Act,1961.
2. In case the property is held for more than 2 years then there would be Long Term Capital Gain and the TDS shall be deducted at the rate of 20%.
The exemption benefits available on the Long Term Capital Gains under section 54 and section 54EC are also available with the seller that is, NRI.
The effective TDS rates that are, addition if surcharge and health and education cess to Long Term Capital Gain rate, for Long Term Capital Gain are as follows:-
- For income less than 50 lakhs- 20.80%
- For income more than 50 lakhs to 1 Crore – 22.88%
- For income more than 1 crore- 23.92%
3. There would be Short Term Capital Gain if the property held for less than 2 years and the TDS shall be deducted as per the Income Tax slabs in India.
Way to deduct less TDS:-
In some cases, there is a facility of deduction of lower TDS rates on the purchase of the property from NRI. Here are the following steps to be followed to claim the less deduction of TDS:-
1. The NRI is required to apply for a lower TDS deduction from the Judicial Assessing Officer of the jurisdiction.
2. The Assessing officer if agreed from the contents of the application then, shall issue the certificate within a period of 30 days.
3. Based on the certificate of lower TDS deduction, now the buyer shall deduct the lower TDS at the rate which is mentioned in the certificate.
So, it is advisable to mention in the Property Sale Agreement details of the TDS deducted. It is also be noted it is not the responsibility of the Registrar to see the TDS is deducted or not. The registrar will register the agreement even if TDS not deducted or wrongly deducted.
If the TDS is wrongly computed then, the Income Tax officer shall not do anything with the seller instead of they shall catch the buyer to pay the TDS to the Government.
Amount on which TDS is calculated:-
The amount on which TDS is deducted in case of purchase of property from NRI is depended upon 2 situations:-
1. When the certificate of lower TDS is not obtained by the seller that is, NRI from the Income Tax Officer, then the buyer can not deduct the TDS on the capital gain account.
However, if the certificate for lower TDS deduction is not obtained then, the buyer shall charge the TDS on the entire transaction value that will be very high. So, it is suitable for obtaining the Lower TDS Deduction Certificate from the Assessing Officer of Income Tax.
2.When the certificate of Lower TDS Reduction is obtained from the Income Tax Officer:-
To obtain the certificate the NRI has to follow the following procedure must be followed:-
- The seller is required to apply for the computation of capital gain by the Income Tax officer.
- On the basis of documents, the Income Tax officer shall assess the Capital Gain.
- The capital gain which is computed by the assessing officer shall be intimated to the seller that is NRI through a certificate.
- The certificate obtained by the NRI shall submit to the buyer for a lower deduction of TDS.
- On the basis of the certificate of Lower deduction of TDS the buyer would deduct less TDS that is, on the amount of capital gain which is computed by Assessing Officer.
Time for deduction of TDS:-
The buyer has to compulsorily deduct the TDS earlier to the date of payment or date on which the amount is credited in the bank account or the cash received. In addition to this, the buyer is also required to deduct the TDS on the advance payment.
TDS to the Government:-
Under the provisions of Income Tax Act, 1961 the TDS deducted from the buyer has to be deposited to the Government within 7 days from the end of the month in which TDS is deducted. The deducted TDS is deposited through the Challan No. ITNS 281.
The return of TDS is to be submitted by the buyer in FORM 27Q. It is to be filed quarterly not monthly. It is filed for all the quarters in which the TDS is deducted. The due dates for filing the TDS return are as follows:-
For April to June- 31 July
For July to September- 31 October
For October to December- 31 January
For January to March- 31 May
Due to COVID- 19 pandemic, the due date of filing TDS return is extended for Financial Year 2019- 20 up to 31 July 2020.
The buyer that is, the deductor is also required to give a TDS certificate to the deductee that is, the seller in FORM 16A which shows proof that the buyer has deposit the amount which is deducted from the amount of seller not used by the buyer on himself. There are also due dates within which the certificate is to be issued by the buyer otherwise he will have to give late penalties for the delay.
The due dates of the TDS certificate are as under:-
For April to June- 15th August
For July to September- 15th November
For October to December- 15th February
For January to March- 15th June
There are also interest provisions on non- deduction of TDS or non- payment of TDS are as follows:-
Non- deduction of TDS (either wholly or partially)- 1% per month from the date on which the TDS is deductible to the date of actual deduction.
TDS deducted but not deducted- 1.5% per month from the date of deduction to the date of payment.