Recently I was asked a question by someone that at what rate TDS is to be deducted at the time of purchasing a property in India from a non-resident.
The answer to the question lies in the simple reading of the Income Tax Act’1961.
Let us examine the relevant Sections of the Income Tax Act’1961.
Extract of of Section 194IA of Income Tax Act, 1961 with Analysis
(1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, 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, deduct an amount equal to one per cent of such sum as income-tax thereon.
(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees.
(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.
Explanation.—For the purposes of this section,—
(a) “agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;
(aa) “consideration for transfer of any immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property;
(b) “immovable property” means any land (other than agricultural land) or any building or part of a building.
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.
The transferor or the seller contemplated in this section should be a resident of India. Therefore, this section only deals with sale of property by residents and TDS @1% is to be deducted on such sale by resident seller provided the consideration for sale of property exceeds Rs. 50 lacs.
Relevant extracts of section 195 of the Income Tax Act’ 1961
(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act 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:
Explanation 2.—For the removal of doubts, it is hereby clarified that the obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not the non-resident person has—
(i) a residence or place of business or business connection in India; or
(ii) any other presence in any manner whatsoever in India.
(2) 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.
(3) 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).
(4) A certificate granted under sub-section (3) 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…..
Section 195 talks about sums payable to a non-resident which are chargeable to tax in India under the Income Tax Act’1961.
When a Non-resident sells an Immovable property in India, Capital gains income may accrue on such sale to the Non-resident which is chargeable to tax in India. Therefore, the consideration from sale of property in India by a non-resident is chargeable to tax in India and is covered by Section 195 and therefore tax has to be deducted at the time of payment of such consideration.
Now the question arises as to the rate of deduction of tax. Sub-section (1) of section 195 prescribes that tax is to be deducted at the rates in force.
Rates in force is the rate at which a particular type of income is taxable under the provisions of the Income Tax Act.
For the purpose of sale by a non-resident of an immovable property, we will have to see the rates prescribed for taxation of capital gains.
As per section 112, Long term capital gains on sale of a capital asset is to be taxed at the rate of 20%.
Short-term capital gain on sale of a capital asset (except on sale of equity shares and equity oriented mutual funds) is to be taxed at the slab rates prescribed under the Finance Act applicable to the year of sale.
Therefore, here we can draw the conclusion that the buyer/ transferee has to deduct tax on sale of immovable property by the non-resident at the slab rate prescribed in case property is sold within three years of its purchase and at the rate of 20% where property is sold after two years* of its purchase i.e where LTCG accrues.
*The criteria of 36 months have been reduced to 24 months for immovable properties such as land, building and house property from FY 2017-18.
Section 90:
Now as per section 90 of the Income Tax Act’1961, the rates of taxation on taxable income of a non-resident will be as prescribed under the Income Tax Act’1961 or under the DTAA of India with the country of which the non-resident is a resident, whichever is more beneficial to the tax payer.
Therefore, if the rates prescribed for taxation of capital gains in the DTAA are less than the 20% rate or the slab rate, then tax will be deducted at that rate.
However, for availing the benefit of lower rate of deduction of tax under the DTAA, the non-resident transferor will have to furnish a Tax Residency Certificate to the payer indicating the tax residency of which he is a resident.
On what amount is the tax to be deducted?
After determining the rate of tax, now the question arises that on which amount is the tax to be deducted.
The tax is to be deducted on income only i.e on the amount of capital gains arising to the non-resident out of the total consideration.
But how will the payer determine the amount of capital gains arising to the non-resident transferee.
The answer lies in sub-sections (2) & (3) of section 195. Under, the provisions of these sub-sections the payer or transferor/payee may make an application to the jurisdictional Assessing officer to determine the sum of capital gains on which tax is to be deducted.
The application to the AO will be made in the prescribed form.
The amount determined by the AO will be the amount on which tax is to be deducted. However, if no such application is made by the payer or the payee to determine the sum chargeable to tax, the tax will be deducted on the entire consideration for sale of immovable property.
Hope you find the above information relevant and useful in your daily practice.
(The author is a CA in practice at Delhi and can be contacted at: E-mail: [email protected], Mobile: +91-9953199493)
Read Other Articles of CA Pratik Anand
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(Republished with Amendments by Team Taxguru)
Author Bio
I am purchasing property in which 3 sisters are sellers.
2 are Indian
1 is NRI (in newzeland)
NRI is giving POA to others for selling property.
How to deduct TDS??
Very good coverage in the article. However, would like to mention that the land or building or both is considered Long term for the purpose of Capital Gains after holding it for the period of 24 months instead of 36 months mentioned in this article.
Can we rectified the tds deducted in 195 then 26QB.
Dear All,
Wonderful discussion. I got a dought. Whether the Surcharge and Cess also have to be deducted as TDS.?
Hi. I am Rahul Jain and I have a purchased a property from NRI. While the TDS payment has been made, want to ensure the calculations for TDS is made as per norms. Seek expert consultation here. As I do not wish to face any IT query/liability in future
Thanks
Please confirm if form 26q needs to be filled or 27q in case seller is NRI
If seller is OCI (Foreign national but of Indian origin and having Overseas Citizen of India Card) and resident in India since more than 10 years and filing tax returns in India, since he is resident for India tax purposes, is TDS deductible at 1% or deductible at higher rate applicable for NRI?
Also what happens if buyer claims that he did not know seller is foreign national since seller lives in India, has PAN card and is of Indian origin, so there is nothing obvious to indicate that seller is of foreign nationality?
Hi,
What happens if NRI falsly hides his NRI status and end up selling property in India with 1% TDS. How income tax department tracks such things? Will there be any implication on buyer due to this?
I would like to know the Form No. to be filed for lower deduction of TDS on sale of Property by Non Resident. kindly, suggest the same
Audio advertisement are extremely irritating.
what should be done if the payee is also an NRI who does not have a PAN.
how will tds issue be solved ?
Hi, I am planning to buy an NRI property. Seller will be obtaining NIL TDS certificate, but it will take 1 or 2 months. My query is should I deduct 20.6% as per existing situation for the advance amount paid as part of the sale agreement ?
Hi,
I am an NRI and planning to sell a property purchased two years back. What are the tax implications and how I can keep the proceeds of the sale in an Indian Bank? I plan to re-invest the proceeds in FDs and Mutual Funds.
Hi,
I am an NRI residing in Dubai and I do not have any PAN Card in India. my address for purchase a property from Builder in India is also of Dubai. I am paying payment of Rs.80 Lach to a Builder from My NRI Account in India.
As some one told me that if NRI having outside india address does not required to deduct TDS of 1% of Builder.
Is this is correct ?
Since I do not have Pan card how to deduct TDS of Builder ?
or should I compulsory need to have PAN card and deduct 1% TDS of Builder ?
Is PAN card is also compulsory to buy Property in India for NRI ?
Please revert.
Dear Sir,
purchase of immovable property from NRI seller
The buyer has deducted TDS @22.66% and filed the form 26QB and even registered in traces.But in form 16B it is refiected as 1% TDS. Where is the difference amount is shown?? And what is the remedy for seller to claim the balance TDS amount????
According to TDS Rate chart (FY 2015-16)given in Govt. site TRACES, TDS is not applicable on purchase of immovable property from a NRI, if PAN available. Otherwise 20%.
Manohar
Dear Brother CA Anand
Thank you for your insightful article. But While I agree to all the points you have mentioned, I do not agree with point as regards application to AO. In the landmark judgement given by Supreme Court in GE Technolgy Case in the year 2010. The excerpt is as follows – The application of section 195(2)
presupposes
that the person responsible for making the payment to the nonresident
is in no doubt that tax is payable in respect of some
part of the amount to be remitted to a nonresident
but is not sure as to what should be the portion so taxable or is not sure as to the amount
of tax to be deducted. In such a situation, he is required to make an application to the ITO(TDS) for determining the amount. It is only when
these conditions are satisfied and an application is made to the ITO(TDS), that the question of making an order under section 195(2) will
arise.
While deciding the scope of section 195(2), it is important to note that the tax which is required to be deducted at source is deductible only out
of the chargeable sum. This is the underlying principle of section 195. Hence, apart from section 9(1), sections 4, 5, 9, 90 and 91 as well as
the provisions of the DTAA are also relevant, while applying tax deduction at source provisions. Reference to the ITO (TDS) under section
195(2) or 195(3) either by the nonresident
or by the resident payer is to avoid any future hassles for both resident as well as nonresident.
Section 195(2) and 195(3) are safeguards. The said provisions are of practical importance.
From this, it follows that where a person responsible for deduction is fairly certain, then he can make his own determination as to whether
the tax is deductible at source and, if so, what should be the amount thereof. [Para 7]
Sir I am planning to purchase a flat from an NRI. he is leaving outside india since last 15-20 years, but has a Indian PAN Card no.and bank account no. and also the flat is registered In his name. So should I have to cut tds 20% or 1% and also the payment will be done in indian rupees. What is the procedure, kindly guide – See more at: https://taxguru.in/income-tax/tds-sale-immovable-property-nonresident.html#sthash.5ZCcKwXK.dpuf
Is individual liable to tds on payment made to NRI on purchase of land,who has income from bs/profession but not liable for Tax Audit
Please, clarify, who is the asssessing officer in case of property sold by an NRI and from whom the certificate of nil deduction has to be obtained, I am in a confused state whether I should approach the assessing officer who is having jurisdiction over my PAN or to the TDS officer, who is issuing certificate u/s. 197 of the I.T.Act,
Very useful article….Thanks Anand
Thanks for the extremely useful article..
Sir I am planning to purchase a flat from an NRI. he is leaving outside india since last 15-20 years, but has a Indian PAN Card no.and bank account no. and also the flat is registered In his name. So should I have to cut tds 20% or 1% and also the payment will be done in indian rupees. What is the procedure, kindly guide
Hello,
I am NRI and have bought a new house property more than Rs.50 lakhs in India in a housing scheme by a reputed builder. (Pvt Ltd Company). As an NRI assessee, please can you advise what I am supposed to do. Am I supposed to pay and claim refund or is there any other recourse available.
Thanks & Regards
Dear Sir
Thanks for your enlightening article.
I have these queries::
I am not interested in going to the AO for determining the proportionate value of the sum payable by me to be offered for tax. In that case, I will have to necessarily apply the RATES IN FORCE as contemplated in Sec 195(1) on the entire sale consideration payable by me. The RATE IN FORCE, as given in your article, is 20% (as provided u/s 112).
Sec 112 says that the LONG TERM CAPITAL GAIN arising on the sale of capital asset is taxable at 20%. In the instant case, I am not offering the CAPITAL GAIN but the ENTIRE SALE CONSIDERATION for tax. In such circumstances, will it be correct for me to apply 20% on the sale consideration payable by me?
Since I am not taking the route of Sec 112 what rates of tax will be applicable in such a scenario?? Should I consider the rate prescribed u/s 195 or u/s 90 or u/s 194IA??
Can i ignore the decision of TRANSMISSION CORPORATION case for determining the prescribed rates of tax??
Should I necessarily obtain TAN for remitting TDS??. If YES, can i surrender the TAN on consummation of the transaction??
Kindly clarify sir. The clarifications are for updation of my knowledge as well as for the benefit of other users..! Hope you will appreciate my intention..!
Hi Pratik,
How do I determine seller’s Tax Residency status for the purpose of TDS deduction, will it be based on his residency status of Fy15 (past year where I know his number of days in India) or Fy16 (year of sale, but sellers likely no. Of days outside India in FY16, for employment is not known). The Seller is in Merchant Navy (1m on & 1m off)
Would appreciate your views.
Thanks for the article.
tds rate on purchase of immovable property by the nri in india
What is the TDS (Tax Deducted at source) rate on a property sale in case of the seller being an NRI?
Sir
We wish to know, if the salary assessee who would buying the property from NRI is subjected to deduct TDS on immovable property at 20%?
Suppose he deducts that , Could he do it through form26QB? which infact is applicable for 194IA? Kindly clarify.
If he cannot use 26QB? and should be comply with the normal provision of TDS such as applying for TAN and filing etds return such as 27 etc?
regards
sathya
NRI sold his property and not gave TDS . Is it right
Very well written Prateek!! You cleared all my doubts in a single article.. Thanks a lot
Is the Sale condideration amount include the registration cost of the property.
Hi pratik,
if the NR buys a property from the sales consideration will he get the benefit of sec 54?? if yes do we need to consider it for the purpose of deducting tax????
Sir,
I want to purchase a residential flat which is owned by mother ( resident of India )& her daughter ( having NRI status in USA ) I want to know
1) Is the TDS deduction is my responsibility on long term capital gain to NRI daughter ?
2) @ what rate to deduct ?
3) at the time of payment tax must be deducted ?
4) are there any way out to save this tax for NRI status person
Hi,
To determine the capital gain on sale of property by a non resident, instead of making an application to AO would it not suffice if Non resident submits a certificate from CA certifying the working of capital gain on the property?
I have selected wrong Financial year while filling form26QB, Now form16B is available for download.How can I get financial year / Assessment year get corrected in these forms ?
basic difference of applicability i.e resident and non resident well brought out
It was really very much useful
Hi,
Very useful article…How estonishing for a layman? Is it practicle possible for lay man to get TRC from NRI, in which slab a NRI falls…& is it required to get TAN to layman/buyer/indiviual to deduct TDS?? And return will also be required to be filled by buyer so that NRI can take benefit of it… I think it is practically not possible in normal course..