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.
Note: The above-mentioned rate i.e. 1% will be reduced to 0.75% during the period starting from 14th May, 2020 to 31st March, 2021.
|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.
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)
(on above rate)
|Total Tax including surcharge||20%||22%
(20% + 2%)
(20% + 3%)
|Add – Health and education cess||4%||4%
(on above rate)
(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:
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].
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.
Certificate contains following fields- Sr.N.o., Certificate Number, TAN/PAN, TAN/PAN Name, Section, Amount
(Rs.), Certificate Rate (%), Valid from Date, Valid till date (as per the original certificate), Valid till (Cancellation Date) and a field for Remarks.
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 Lower deduction of TDS has been obtained from the Income Tax Officer –
Following process is to be followed for obtaining a certificate of Lower deduction of TDS from the Income Tax Officer –
2. When the certificate of Lower deduction of TDS has not been obtained from the Income Tax Officer –
As seen above, if the certificate of Lower deduction of TDS is obtained from the Income Tax Officer, the buyer has to deduct TDS on the Capital Gain amount.
However, if the certificate of Lower deduction of TDS 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 Lower deduction of TDS from the Income Tax Officer.
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.
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.
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 –
|April – June||31st July|
|July – September||31st October|
|October – December||31st January|
|January – March||31st May|
Note: Due to COVID-19 pandemic situation, the due date of TDS Return for Q4 of FY 2019-20 has been extended upto 31st July, 2020.
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 –
|April – June||15th August|
|July – September||15th November|
|October – December||15th February|
|January – March||15th June|
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.|
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.
(Republished with amendments)