TDS Deduction On Property Even When Consideration Is Less Then 50 Lakhs

Many of us know that if the person is buying property in India and the value of the consideration exceeds Rs.50 Lakhs then the buyer will have to deduct the TDS @ 1% on the gross value of consideration and we even deduct the TDS at this rate on all such transaction. However, this provision is not applicable to many of the cases. In this article, we will understand the situation in which the buyer will have to deduct the TDS even the value of consideration is less than Rs.50 Lakhs but before that let’s understand this provision.

buying property in India

So, as per Section 194IA of Income-tax act, 1961, TDS is required to be deducted at the rate of 1% if any person buying a property from the person being a resident of India.

Note: For the application of this section, the seller of the property must be Resident of India.

If the Non-Resident Individual intends to sell the property in India then the buyer shall deduct the TDS but not under section 194IA and if the TDS is being not deducted then the condition of Rsl50 Lakhs shall not be applicable in this case. In this case, the buyer will have to deduct the TDS under section 195.

For Example: Suppose Mr. Nikhil Bhatia, a non-resident Indian (NRI) is selling his house for around ₹49 lakh then also the buyer of the property shall be required to deduct the TDS under section 195

The rate at which TDS shall be deducted under section 195

Where any person buys a property from an NRI, on which the NRI has earned the capital gain and such gain is a long term capital gain then the TDS would be deducted at the rate of 20% which shall be increased by surcharge and cess

The TDS rate shall become 30% (plus cess and surcharge, as applicable) in case gain is of short-term capital gains. Here, no minimum threshold limit applicable for deduction of TDS, so TDS shall be applied where even the consideration is less than ₹50 lakh as well, as per Section 195 of the Act.

Note: It is to be noted that whether 194IA or 195, on sale of the property, TDS shall be required to be deducted on the sale consideration and not on the capital gain amount. Hence, it might be possible that on sale, the NRI may suffer the loss but still, the buyer will have to deduct the TDS. 

Although, in this case, or where the NRI wants to claim capital gains exemption or if his total income is below the taxable limit, he may request to income tax officer that no TDS would be required to be deducted from the payment made to him. For this, he would have to file an application under section 197 to the assessing officer of the income tax department. After receiving the application, the assessing officer shall verify and satisfy himself that a lower rate of TDS or no TDS should be deducted. Once the assessing officer is satisfied, he will issue a certificate specifying the same. After that, the NRI will submit this certificate to the buyer of the property, who shall keep a copy of such certificate and deduct tax as per the certificate issued under section 197.

NRI PRoperty purchase compliance

Final Thought

Let’s summarise both provisions by making the differences which are as follows:

S.No. Particulars Section 194IA Section 195
1 Applicability The provision of this section shall be applied where the seller of the property is a resident of India  The provision of this section shall apply where the recipient of the consideration is a Non-Resident. 
2 Nature of the transaction covered in section Deals with the only sale of Property Under section 195, different kind of services has been specified provided by the NR and different TDS rates has been prescribed as per the nature of services
3 Limit TDS provision shall be applicable where the sale consideration exceeds Rs.50 Lakhs Here, TDS provisions shall apply even where the consideration amount is less than 50 Lakhs.
4 Rate of TDS TDS shall be deducted @1% on the sale consideration irrespective of the type of gain. TDS shall be deducted 

In the case of LTCG: 20%(Plus Surcharge and cess) 

In the case of STCG: 30%(Plus surcharge and Cess)

5 Form to be filed 26QB  27Q

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