TDS on Sale and Purchase of Immoveable Property by Non-Residents (NRIs)

Dr. CA Abhishek Murali

INTRODUCTION TO THE TDS PROVISIONS:

Due to a rise in unreported and undervalued transactions involving the purchase and sale of immovable properties, the Government recognized the necessity for regulations to enhance the reporting of such transactions. Consequently, Section 194IA was implemented as a result. Section 194IA, introduced in the Union Budget 2013-14, mandates a Tax Deducted at Source (TDS) of 1% on all transactions involving immovable properties valued at Rs. 50 Lakhs or above. To facilitate this, the PAN card number and details of both the buyer and seller are required.

Summary of TDS on Sale of Immovable Property 

Particulars	%
Where Seller is a RESIDENT Any immoveable property (other than agricultural land) provided consideration is Rs.50 lakhs or more – Sec 194IA	1% of the Sale Consideration
Where Seller is a NON-RESIDENT and certificate of Capital Gains is obtained from ITO (Sec 195) –     Any immovable property	20% of Capital Gains
Where Seller is a NON-RESIDENT and no certificate obtained from ITO (Sec 195) –     Any immovable property	20% of the Sale Consideration

 TDS on Sale of Immovable Property by Non-Residents (Sec 195) 

Introduction:

The taxation rules for the sale of immovable property differ significantly between non-residents and residents. This distinction is crucial to understand when it comes to the deduction of Tax Deducted at Source (TDS) in such transactions.

Scope of Taxation on Sale of Immovable Property by Non-Resident:

When purchasing property from a non-resident Indian (NRI), TDS under Section 195 is necessary to be deducted on the capital gains, provided certain conditions are met. Unlike transactions involving residents, there is no monetary threshold for the applicability of TDS in these cases. In other words, regardless of the value of the property being sold by a non-resident, TDS must be deducted as per the guidelines outlined in Section 195.

Particulars	Rate (%)
Long Term Capital Gains (i.e. Property held for more than 2 years)	20%
Short Term Capital Gains (i.e. Property held for less than 2 years)	Slab Rate of seller

In the case of residents, Tax Deducted at Source (TDS) is only applicable if the sale value of the property is Rs. 50 lakhs or more. However, for non-residents, there is no monetary limit for TDS purposes when it comes to the sale of property. This means that even if the sale value of the property is Rs. 5 lakhs, the TDS rate of 20% under Section 195 will still be applicable if the property is being sold by a non-resident.

Consequently, TDS must be deducted whenever any payment is made to the non-resident individual for the purchase of property. This includes situations where an advance payment is being made for the purchase of the property. In such cases, TDS is required to be deducted on the amount of the advance payment as per the regulations.

Amount on which TDS is deducted – Sale Consideration or Capital Gains 

The original concept is that Tax Deducted at Source (TDS) is required to be deducted on the capital gains arising from the sale of the property. The expectation is that the seller would calculate the amount of capital gains generated from the sale and inform the buyer, who would then deduct tax at a rate of 20% on that amount.

However, it is important to note that the computation of capital gains should not be done by the seller personally; it should be determined by the Income Tax Officer. The Income Tax Officer will assess the capital gains and issue a certificate indicating the taxable amount, which must be provided to the buyer.

Therefore, if the seller fails to obtain the certificate from the Income Tax Officer, the buyer should deduct TDS at a rate of 20% of the sale consideration. This ensures compliance with the tax regulations in the absence of the capital gains certificate.

Particulars	%
Where seller is a NON-RESIDENT and certificate of Capital Gains is obtained from ITO (Sec 195) – Any immovable property	20% of Capital Gains
Where Seller is a NON-RESIDENT and no certificate obtained from ITO (Sec 195) – Any immovable property	20% of the Sale Consideration

TDS Remittance, TDS Return and PAN No.:

TAN Number Requirement:

The buyer must obtain a Tax Deduction and Collection Account Number (TAN) before making a purchase. A TAN number is necessary when buying property from a non-resident Indian (NRI) but not when purchasing from a resident Indian. It’s important to note that a TAN number is distinct from a PAN (Permanent Account Number). Hence, in addition to PAN, the buyer must acquire a TAN number.

TDS Deposit Deadline:

The TDS amount deducted by the buyer must be deposited with the government within seven days from the end of the month in which the TDS was deducted. This deposit should be made using Challan No./ITNS 281.

Filing TDS Return:

After the TDS has been deposited, the buyer is required to file a TDS Return. The TDS Return should be furnished in Form 27Q and filed separately for each quarter in which TDS was deducted. This TDS Return must be filed within 31 days from the end of the respective quarter in which the TDS was deducted.

Frequently Asked Questions on TDS on Sale of Property by Non-Resident (FAQs)

Q1: What details should be provided to the Tax Officer?

A1: The Tax Officer will require details such as the purchase price of the property, date of purchase, and any expenses incurred for renovation or construction.

Q2: What happens if excess TDS is deducted than the actual tax payable?

A2: If excess TDS is deducted, the seller can claim a refund of the excess amount at the time of filing their Income Tax Return.

Q3: What certificate should the seller collect from the buyer?

A3: The seller should collect Form 16A from the buyer when it becomes available. This form serves as a certificate for the TDS deduction made by the buyer.

Q4: What if multiple payments are made for the property?

A4: In the case of multiple payments, TDS should be deducted at the time of each payment and not solely at the time of property registration.

Q5: What happens if TDS is wrongly deducted or not deducted at all?

A5: If TDS is wrongly deducted or not deducted at all, the Income Tax Department will not take any action against the seller. Instead, the department will pursue the buyer of the property to deposit the required TDS. If the buyer fails to deduct TDS or deducts a lesser amount, the Income Tax Department will recover the TDS from the buyer.

Conclusion

In conclusion, the provision of Tax Deducted at Source (TDS) on the sale of property is crucial for both sellers and buyers of immovable properties. It becomes particularly significant when the property is being sold by a non-resident.

Therefore, it is essential to be aware of the specific provisions applicable in such cases and to plan for taxes and remittance accordingly. Seeking assistance from a qualified professional is advisable to ensure proper tax planning and compliance before selling the property. This will help avoid any potential complications or issues related to TDS and taxation in the property transaction.