TDS ON PURCHASE OF PROPERTY FROM NON RESIDENT INDIAN (NRI)

Sec 194-IA deals with TDS on sale of immovable property. Under this section TDS is to be deducted @1% at the time of credit of such sum to the account of the transferor or at the time of payment of such sum whichever is earlier on sale of immovable property.

In case of purchase of property from NRI, TDS is required to be deducted u/s 195 of Income Tax, 1961.

Amount on which TDS is required to be deducted-

Ideally, TDS is done on the entire amount of the Net sale Consideration from the sale of property.

TDS can be done on lower amount if the seller obtains a certificate from the AO.

In case if the certificate is not obtained by the seller, TDS will be done on the entire amount of the Net Sale Consideration.

Documents to be submitted to AO for lower deduction- Purchase Price, Date of Purchase, expenses on renovation/ reconstruction etc.

Rate at which TDS is done-

• At the slab rates prescribed, if property is sold within 3 years of its purchase.
• At 20% (surcharge applicable), if certificate of lower deduction is obtained or TDS is to be done on the LTCG accrues when property is sold after 3 years of its purchase.

Other compliances-

1. The buyer should have a TAN for deducting TDS of a NRI.
2. The TDS so deducted should be deposited within 7 days from the end of the month in which TDS is done.
3. After depositing TDS, a return is required to be furnished in Form No. 27Q quarterly. (Within 31 days from the end of the quarter in which TDS is done.)
4. Form No. 16A is also required to be furnished to the seller of the property.
5. TDS is required to be done at the time of payment and not at the time of Registration of Property.
6. In case of late payment of TDS return, interest shall be levied @1.5% per month or part thereof.
7. In case of late filing of TDS return, penalty of Rs. 200/- per day would be levied maximum Rs. 5,000/-.

Implications of section 54 of Income Tax Act, 1961

Exemption u/s 54 of Income Tax Act, 1961 is available when there is a long term capital gain on sale of a house property of the NRI.

Conditions for claiming exemption-

1. The amount of capital gains needs to be invested.
2. Purchase new house either one year before or two years after the sale of the property. The capital gains can also be invested in construction of new house property but the construction must be completed within 3 years from the date of sale.
3. The new house property must be situated in India.