It is essential to note that in case of purchase of property, the buyer is responsible for deducting the applicable tax at source (i.e. TDS) and deposit the same with the Government. Since the buyer is required to deduct the TDS, he would obviously be required to fulfil all the relevant compliance like TDS payment; TDS return filing and issuance of TDS certificate.

It is important to mention here that based on the type of seller of the property the applicability of the TDS provisions changes and the same is explained here under –

Sr. No. Category of seller Applicable TDS provisions
1. Resident Section 194-IA

TDS is to be deducted @ 1% only when consideration is more than INR 50 Lakhs.

2. Non-resident Indian (NRI) Section 195 – TDS deductible as –

1. Long Term Capital Gain Tax – 20% (However, the effective TDS rate is explained below); or

2. Short Term Capital Gain Tax – as per the income tax slab of the seller

The present article provides exhaustive information on the applicability of TDS provisions on purchase of property from NRI. The article covers various aspects like TDS rates; deduction of TDS at lower rates; amount on which TDS is to be deducted; time of deduction and time of deposit of TDS; TDS returns and TDS certificate.

Purchase of Property from NRI

Applicable TDS rates on the purchase of property from NRI –

The Indian resident purchasing a property from Non-resident Indian is required to deduct TDS as follows –

1. TDS is to be deducted by the buyer as per provisions of Section 195.

2. In case the property is held for more than two years, then there would be ‘Long Term Capital Gain’ and TDS would be deducted at the rate of 20%. However, the effective TDS rates in case of ‘Long Term Capital Gain’ is tabulated here under –

Particulars Effective TDS rate
Income is less than INR 50 Lakhs Income is INR 50 Lakhs to INR 1 Crore Income is more than INR 1 Crore
Long Term Capital Gain Tax Rate 20% 20% 20%
Add – Surcharge 0% 10%

(on above rate)

15%

(on above rate)

Total Tax including surcharge 20% 22%

(20% + 2%)

23%

(20% + 3%)

Add – Health and education cess 4% 4%

(on above rate)

4%

(on above rate)

Effective TDS Rates 20.80% 22.88% 23.92%

Note: Please keep in mind the Marginal Relief factor at the time of calculation of final tax liability in case of seller of property

The surcharge shall be subject to marginal relief:

    • Where income exceeds Rs. 50 lakhs, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of Rs. 50 lakhs by more than the amount of income that exceeds Rs. 50 lakhs.
    • Where income exceeds Rs. 1 crore, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of Rs. 1 crore by more than the amount of income that exceeds Rs. 1 crore
    • Where income exceeds Rs. 2 crore, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of Rs. 2 crore by more than the amount of income that exceeds Rs. 2 crore
    • Where income exceeds Rs. 5 crore rupees, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of Rs. 5 crore rupees by more than the amount of income that exceeds Rs. 5 crore rupees

3. There would be a Short Term Capital Gain in case the property is held for less than two years.

In the case of Short Term Capital Gain, TDS would be deducted at the applicable Income Tax Rates slab [based on the total taxable income of seller (i.e. NRI) in India].

Deduction of TDS at Lower Rates –

The facility of lower TDS rate is also available in case of TDS deduction on the purchase of property from NRI. Following steps are to be followed for claiming the benefit of lower TDS rates –

1. The seller (i.e. NRI) is required to apply for a lower TDS deduction from the Jurisdictional Assessing Officer of Income Tax.

2. The Assessing Officer shall issue a certificate of lower TDS deduction within a period of 30 days.

3. Based on the certificate of lower TDS deduction, the buyer of the property is required to deduct such TDS as mentioned in the certificate.

Amount on which TDS is to be deducted –

The amount on which TDS is to be deducted in case of purchase of property from NRI depends on the following two situations –

1. When the certificate of computation of Capital Gain has been obtained from the Income Tax Officer –

Following process is to be followed for obtaining a certificate of computation of Capital Gain from the Income Tax Officer –

  • The seller (i.e. NRI) is required to apply for computation of Capital Gain to the Income Tax Officer.
  • On the basis of the documents, the Income Tax Officer would compute the Capital Gain.
  • The capital gain so computed by the Income Tax Officer would be intimated to the seller by way of a certificate.
  • The seller is required to submit the said certificate of computation of Capital Gain to the buyer.
  • On the basis of the certificate, the buyer would deduct TDS on the capital gain so computed by the Income Tax Officer.

2. When the certificate of computation of Capital Gain has not been obtained from the Income Tax Officer –

As seen above, if the certificate is obtained from the Income Tax Officer, the buyer has to deduct TDS on the Capital Gain amount.

However, if the certificate of computation of Capital Gain has not been obtained, then, the buyer is required to deduct TDS on the entire transaction value. This obviously would result in a higher deduction of TDS, and hence it is advisable to obtain the certificate of computation of Capital Gain from the Income Tax Officer.

Time of deduction of TDS –

The buyer is obligatory to deduct the TDS within earlier of date of payment or date of credit of income. Meaning thereby that the buyer is required to deduct TDS also in case of an advance payment.

Time of deposit of the TDS with the Government –

The buyer is required to deposit the TDS so deducted to the Government within a period of 7 days from the end of the month in which the TDS has been deducted. The buyer is required to deposit the TDS through Challan No. ITNS 281.

TDS return –

The buyer is required to submit the TDS return in Form 27Q. The return is to be filed for all the quarters in which the TDS is deducted. The due date of furnishing of TDS return is summarized here under –

Period Due date
April – June 31st July
July – September 31st October
October – December 31st January
January – March 31st May

TDS certificate –

The Deductor (i.e. the buyer) is required to issue TDS certificate to the Deductee (i.e. seller) in Form 16A. The due date for issuing TDS certificate is tabulated here under –

Period Due date
April – June 15th August
July – September 15th November
October – December 15th February
January – March 15th June

Other important points worth highlighting –

  • It is mandatory for the buyer of the property (only when the seller is a non-resident) to obtain Tax Deduction and Collection Account Number (i.e. TAN).
  • The exemption benefits available on Long Term Capital Gain under section 54 and section 54EC is also available to the seller (i.e. NRI).
  • Applicable interest provisions –

The applicable interest provisions for non-deduction or non-payment of TDS is explained here under –

Particulars Amount of interest payable
Non-deduction of TDS (either wholly or partly) 1% per month from the date on which TDS is deductible to the date of actual deduction.
TDS deducted, however, not deposited (either wholly or partly) 1.5% per month from the date of deduction to the date of payment.

Applicable late fee and penalty provisions –

In case the buyer fails to deduct the TDS (wholly or partly) or fails to deposit the TDS with the Government, then the buyer (i.e. Deductor) would be liable to pay penalty under section 271C.

Here, the defaulter would be required to pay penalty amounting to sum equal to the TDS not deducted or TDS not paid.

The buyer of the property is required to file the TDS return within the prescribed due date. If the buyer fails to file the TDS return, then as per section 234E of the Income Tax Act he would be liable to pay late fee of INR 200 per day till the failure continues.

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5 Comments

  1. Hema Dudeja says:

    1. There are two more slabs in the rates, income exceeding 1 crore but less than 2 crore with surcharge rate as 15% and income exceeding 2 crores but less than 5 crores with surcharge rate as 25% and income exceeding 5 crores with surcharge rate of 37%.
    2. Even though certificate is obtained from the AO, TDS is deducted on the sale consideration amount at the rate mentioned in the certificate.
    3. Please advise on the below issue:
    In the 197 certificate, the AO mentions balance sale consideration payable after deducting advance payment. Now. the buyer shall deduct TDS on balance sale consideration at the rate mentioned in the certificate. But what about the TDS on advance payment made earlier. Please advise.

    1. CA Sagar Gambhir says:

      Get calculation sheet from buyer on the basis of which Certificate has been issued by AO. AO must have calculated Capital Gains & its Tax accordingly for ascertaining lower TDS rate

    1. CA Sagar Gambhir says:

      Seller discloses all the details for getting sales deed registry registered. i.e. his/her PAN, AADHAR, residential country etc.

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