PURCHASE OF PROPERTY FROM NRI AND TDS RELATED PROVISION

Have you bought an immovable property and you are worried about TDS and the compliance required then this article will answer all your queries.

When an individual buys an immovable property whether it is from a resident individual  ornon residential individual TDS is required to be deducted by the buyer at a rate specified in the provision.

TDS deduction in case seller is an resident individual

Section 194 IA  talks about TDS on payment to resident individual for transfer of immovable property.

As per this section any person, being a transferee, responsible for paying (other than the person referred to in section 194LA, relating to compensation in case of compulsory acquisition of property) to a resident transferor any sum by way of consideration for transfer of any immovable property being any land (other than agricultural land) or any building or part of a building shall be liable to deduct tax @ 1% at the time of credit of such sum to the account of the transferor, or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

TDS deduction liability come into force only when the consideration is more than 50lakh

For example-If the property sold is worth RS 40 lakh having a stamp duty Value of 60 lakh TDS is not to be deducted as the consideration doesn’t exceed 50lakh, but if consideration would have been 70lakh then TDS @1% of 70 lakh i.e. 70000 needs to be deductedat the time of credit of such sum to the account of the transferor, or at the time of payment, whichever is earlier.

TDS deduction in case seller is an Non residentindividual

Section 194 IA talks only about payment made to resident individual for transfer of immovable property. But when it comes to non resident individual there is a specific provision related to TDS deduction in case of payment being made to non resident individual.

Section 195:

As per this section any person making payment to NRI need to deduct TDS at a rate specified in the provision. The nature of payment include:

1. a) Any interest (not being interest referred to in section 194LB, 194LC and 194LD)
2. b) Any other sumchargeable under the provision of this Act (not being income chargeable under the head ‘Salaries’)

So when a person makes payment to NRI as a consideration for transfer of immovable property(other than agricultural land), it gets covered under point (b) i.e. “any other sum chargeable under the provision of this act” and TDS is required to be deducted at the specified rate i.e. 20% + surcharge and cess. The rate table is given below:

	Particulars	Property Sale Price (Rs.)
		Less than 50 Lakhs	50 Lakhs to 1 Crores	Above Rs. 1 Crores
	Long Term Capital Gains Tax	20%	20%	20%
(Add)	Surcharge	Nil	10% of above	15% of above
	Total Tax (incl Surcharge)	20%	22%	23%
(Add)	Health & Ed. Cess	4% of above	4% of above	4% of above
	Applicable TDS Rate (incl. Surcharge &Cess)	20.8%	22.88%	23.92%*

But now the question arises at what amount the TDS should be deducted, as section 195 states TDS to be deducted on “ any other sum” so TDS by default has to be deducted on Total Sale . But when the individual feels that the tax liability will be less than the TDS amount he may fill form 13under section 197 and ask officer for lower tax deduction.

LOWER TAX DEDUCTION RATE AS PER SECTION 197

The TDS on sale of property by NRI is required to be deducted under Section 195 and it should ideally  be deducted on the Capital Gains ,one can ask assessing officer and get the TDS amount reduced. However, this computation of Capital Gains cannot be done by the Seller/Buyer himself and should be done by the Income Tax Officer.

The seller OR Buyer either of them shall file an application in Form 13 with the Income Tax Department and request them to compute his Capital Gains. The procedure for filing of this form is a bit complicated and the seller can take the services of a chartered accountant for filing an application with the Income Tax Dept.

The Income Tax Department will compute the Capital Gains of the seller and will issue a certificate for Nil/ Lower deduction of TDS depending on the capital gains arising on the sale of property.

The seller is required to give this certificate to the buyer and the buyer will deduct the TDS as per the rates mentioned in the income tax certificate.

COMPLIANCE IN PART OF BUYER

1. Buyer is firstly required to obtain TAN no of seller mandatorily
2. Deposit the deducted TDS to the government by 7^th of next month
3. File TDS return for the same