Application for lower deduction of tax by the non-residents

Any resident person selling the property is liable for TDS @ 1% and that too only if the value of the property exceeds Rs. 50 Lakh. This is not so when the NRI sells the property located in India. The rates for tax deduction at source for non-resident tax payers in India are higher than a resident assessee under the Income Tax Act 1961. TDS rate is @ 20% if the property is sold by NRI. The TDS provision in such cases is covered by section 195.

Section 195 (1) of the Act provides that any person responsible for paying to a non-resident any interest (not being interest referred to in section 194LB or section 194 LC or section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.

The rate of tax in force (other than interest under sections 194LB, 194LC and 194LD which is normally in the range of 4% to 5%) is 20% in case of a non-resident. It may be noted above that Tax deduction on salary is not covered under the provisions of section 195.

It may happen that the final tax liability by a non-resident may be lower than the TDS rate applicable under section 195 of the Act. To overcome this, Section 195(2) and (195(3) of the Act provides the relief. It provides as under:

1. Where the person responsible for paying any such sum chargeable under this Act (other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application in such form and manner to the Assessing Officer, to determine in such manner, as may be prescribed, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable.[Section 195(2)]
2. Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub-section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section,and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1).

It means that either the payer of the income or the receiver of the income can make an application for lower deduction of tax under section 195(2) and 195(3) of the Act respectively. Further, Section 195(4) provides that a certificate granted under sub-section (3) (i.e to the receiver of the income, the non-resident) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation.

Thus the Certificate for lower or nil deduction of tax is issued by the Assessing officer to the non-resident for a specified period mentioned in the certificate for which it is valid unless it is cancelled by the assessing officer. It may be noted that section 195 (5) provides that the Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. Pursuant to this, CBDT has prescribed Form no. 13 for making an on line application for lower deduction of tax read with rule 28B of the Income tax Rules 1962. Section 195(6) and section 195(7) provides for information to be submitted by certain TDS payers which is not relevant for this article and therefore not considered here.

Application for lower deduction of tax under section 197(3):

1. Either the non-resident assessee can make an application under section 195(3), or request the payer of the income under section 195(2), to make an application for lower or no deduction of tax from his income under section 197(3) of the Act read with rule 28 of the Income tax Rules 1962 in the prescribed form 13.
2. Rule 28 of the Rules provides that application in form 13 can be filed online at the web portal of income tax department i.e. Traces at, https://www.tdscpc.gov.in. The application is required to be signed either under (i) digital signature; or (ii)  through electronic verification code.

How to file on-line application in the prescribed form 13 under section 197(3)

1. Log in at the web sitehttps://www.tdscpc.gov.inis already registered. If not, then registration on the above website is compulsory.
2. If the application is being made by the payer/deductor under section 195(2), then the registration should be done as a deductor
3. If the application is being made by the payee/deductee under section 195(3), then the registration should be done as a taxpayer.
4. One should now download form no. 13 from the website
5. One has to fill form no. 13 and upload the documents in support of the fact that the income is lower/nil and therefore no tax should be deducted.
6. One has to sign it electronically for submission.

7.Normally following documents/ information is required to be kept handy for online submission of Form No. 13

Name and address (both Indian as well as foreign) of the applicant

Status

Residential Status

Passport (Scanned copy to be collected) in case of non residents

Previous year wise details of stay in India (in case of non residents) – will be required to establish residential status

PAN

OCI Card no. if available

Email id of the assessee

Mobile no. of the assessee and /or his representative

Details of existing tax liabilities, Assessment year wise  if any. Lower deduction of tax certificate will be issued only if the liabilities are paid before issuing the certificate

Previous year to which the payments/receipts relate  for which application is made

Estimated Computation of Income for the previous year relevant to the assessment year for which lower/nil deduction application is being made

Tax payable on the above income

Statement of exempt income for the previous year relevant to assessment year for which application is being made

Details of any advance tax /TDS already paid for the previous year for which lower deduction for tax certificate is applied for.

Whether exemption under section 10, 11 and 12 claimed (applicable in the case of the trusts)

Estimated Computation of Income for the previous four years if the Income tax returns are not filed

Copies of the returns if filed in paper form for the last four years

Final agreement for purchase of the existing property (being sold now)

Draft/final agreement for sale of the above property

Draft/final agreement for purchase of new property  which is exempt under section 54 or investments made claiming exemption under any other provision

Bank Account no. (Scanned copies to be submitted for the last four years) and for the previous year for which the application for lower deduction of the tax is to be made.

Application (form no.13) in the prescribed format duly filled in with all the supporting documents

Bank loan sanction for the purchase of the existing old flat as TDS officer may ask for the sources for buying the old flat purchased

Letter of indemnity Certain times the TDS officers ask for such a letter

Engagement letter for the above assignment

Letter of authority for presenting the case to the TDS officer