Introduction
TDS is required to be deducted, whenever any property is purchased/sold. In this article, we will understand the provision of income tax relating to TDS which is required to be deducted on the sale of the property. As per our traditional format, this article will also move in question-and-answer format.
Ques: When TDS is required to be deducted?
Sol: The buyer will have to deduct TDS at the time of paying the amount to the seller and pay the balance to the seller. Such deducted amount is then required to be deposited to the government by the buyer.
Now, the provision may differently apply on the basis of the residential status of the seller. In case the seller is a resident Indian then the amount of TDS would be 1% of the Sale Price would be deducted however in the case where the seller is an NRI TDS deduction would depend on the quantum of money received by the seller. We will understand the same in detail here.
Although, the buyer’s residential status would not be considered and only the residential status of the seller would be considered for calculating the number of TDS to be deducted.
Ques: What is the Rate of TDS on the Sale of Property by NRI?
The provision will be differently applied on the basis of the status of the supplier. TDS on Sale of Property by NRI is required to be deducted as per the rates mentioned below:-
| Nature of Capital Gains | Description | TDS Rate on Sale of Property by NRI |
| Long Term Capital Gains | Where the Property held for more than 2 years | 20% |
| Short Term Capital Gains | Property held for less than 2 years | Income Tax Slab Rates of Seller |
Ques: Whether surcharge and Cess are also added to the above rates?
Sol: In the above amount, Surcharge and Cess would also be further added.
Ques: Whether surcharge and Cess are added on both long-term and short-term capital gains?
Sol: In the case of Short Term Capital Gains (i.e. where the property has been sold within 2 years from the date of purchase), the Surcharge and Cess would also be added to the applicable Tax Rate as per the Income Tax Slabs in the same manner as for the Long Term Capital Gains.
Ques: Whether TDS is deducted on an accrual basis or payment basis?
Sol: The TDS is required to be deducted on a payment basis that means whenever the buyer made any payment to the NRI for the purchase of the property. Even if any advance amount is being paid for the purchase of property, TDS would be deducted.
TDS is to be deposited by the buyer with the Income Tax Dept by stating that this is the TDS which he has deducted from the payment made to NRI.
Ques: What is the limit for deducting TDS?
Sol: TDS on purchase of immovable property from NRI is required to be deducted irrespective of the Transaction Value of the Property. Even if the value of the property is less than Rs. 50 Lakhs – this TDS is required to be deducted. The limit of Rs.50 Lakhs is defined here because in the case where the seller is resident then the TDS would have to be deducted where the transaction value is Rs50 Lakhs or more however this limit is applied where the seller is Non-resident. Such deducted TDS amount is required to be paid to the government by furnishing Form 26QB within 30 days from the end of the month in which TDS was deduction was initiated.
Ques: On which amount, TDS is required to be deducted
Sol: Section 195 of the Income-tax act deals with the TDS on the purchase of immovable property from NRI and is normally required to be deducted on the amount of Capital Gains. However, the computation of Capital Gains cannot be done by the NRI Seller himself and should be done by the Income Tax Officer.
Ques: What is the procedure for computing the capital gain with the help of an assessing officer?
Sol: The seller shall file an application Form 13 with the Income Tax Dept and also request them to calculate his Capital Gains. Although, the procedure is a bit complicated for filing this form and the NRI seller can take the assistance of a chartered accountant for filing this application with the Income Tax Dept.
The department will compute the Capital Gains of the seller and will also issue a certificate for Nil/ Lower deduction of TDS depending on the capital gains arising on the sale of the property.
The certificate shall be generated by the department and is required to give to the buyer by the seller and on the basis of that certificate, the buyer will deduct the TDS as per the rates mentioned in the income tax certificate.
Ques: What if, the certificate has not been obtained by the seller from the assessing officer?
Sol: If the certificate is not obtained by the seller from the assessing officer, then TDS should be deducted on the Total Sale Price and not on the Capital Gains. Hence, it is very important for the seller to obtain this certificate from the Income Tax Officer.
It is also advisable that the TDS details should be mentioned in Property Sale Agreement. It is to be noted that it is not the responsibility of the Registrar to ensure the TDS Deduction. The property registrar shall register the Sale Agreement even if the amount of TDS is not deducted or wrongly deducted.
Ques: What if the TDS has been wrongly deducted?
Sol: If the TDS is not deducted or wrongly deducted, the Income Tax Dept shall not do anything to the seller but will hold of the property of the buyer and ask him to deposit the TDS. If the buyer fails to deduct the TDS or deduct the TDS of less amount then the Income Tax Dept will recover the TDS from the buyer.
Ques: How to deposit the TDS and what is the procedure to deposit the TDS return?
Sol: It is important to take care of the compliances at the time of buying a property from an NRI. Initially, the buyer should have a TAN No. for the TDS deduction. Although, TAN No. is not required in case the property is purchased from an Indian Resident but will become mandatory in case the property is purchased from a Non-Resident Indian.
Ques: Whether the buyer is also required to possess a TAN Number?
TAN No. means Tax Deduction and Collection Account number which is different from a PAN No. Only buyer is required to have the TAN No. and not the seller. In case the buyer does not possess the TAN No., he should firstly apply for the same before deduction of TDS. It is very important to note here that in case there are two buyers, then both the buyers would be required to apply for the TAN No.
Ques: What is the time limit to deposit TDS?
Sol: The buyer is required to deposit the TDS amount within 7 days from the end of the month in which the TDS has been deducted with the Income Tax Dept. For example: If TDS is deducted in the month of July, then the TDS should be deposited with the Income Tax Dept on or before 7th August.
Once, the TDS has been deposited, the buyer is required to file a TDS Return. Such Return would be filed in Form 27Q and is required to be filed separately for each quarter in which the TDS has been deducted. TDS Return is required to be filed within 31 days from the end of the quarter in which the TDS has been deducted.
After the deposit of TDS and furnishing of TDS Return, the buyer shall also furnish Form 16A to the seller of the property.
Ques: What are the important points which should be taken care by the Seller
Sol: The following are the points that should be kept in mind by the seller at the time of deduction of TDS on Sale of Property by NRI
- Attempt to get the Certificate from the Income Tax Department for computing of Capital Gains which will result of lower of deduction of TDS.
- Numerous documents like Date of Purchase, Purchase Price, any expenses on Renovation/ Construction, etc. shall be required to be submitted with Form 13. The assessing officer will also review these documents and when he is satisfied, he will issue a certificate for lower deduction of TDS.
- In case the Seller is not able to get the Certificate, TDS would be deducted on Sale Value which will lead to excess deduction of TDS.
- The seller should also collect Form 16A from the Buyer along with Property Registration Documents.
- If the seller intends to reinvest the Capital Gains in India, the seller can reduce his Capital Gains which will lead to lesser TDS and Tax Liability.
- The seller can also apply for a refund of the excess TDS deducted at the end of the year, in case he does not opt for this certificate.