CA Goutam Jain 

CA Goutam JainIncome tax Act taxes gain on property sale in same manner to all individuals; be it resident OR non- resident. Sale of short term held property i.e. up to 3 years is taxes at slab rate and long term held property i.e. more than 3 years at 20%.

But withholding tax/TDS provisions are different for resident and non- resident.

As per Section 194-IA If property is sold by resident than buyer requires to deduct TDS at 1% on sale Value. Whereas section 195 require deducting TDS on payment to Non-Resident at normal tax rate applies to transaction i.e. 20% in case long term held property and 30%+cess on short term held property. Point to note here is TDS is to be deducted on sum payable rather gain amount. Here this become harsher to Non- Residents since major portion of value of property requires to deposited with Tax Department as TDS and later on to claim refund if tax on gain amount is lower than TDS by filing annual return of income which results blockage of fund by 1-2 years .

Here is example of simple tax computation for Resident and Non- Resident property seller-

Sr. No. Particulars Resident Non-Resident
I Sale Value of property 1,00,00,000 1,00,00,000
II Indexed Cost 70,00,000 70,00,000
III Long Term Capital Gain 30,00,000 30,00,000
IV Tax on gain (20% of III) 6,00,000 6,00,000
V TDS will be deducted by Buyer at the time of sale of property 1,00,000 20,00,000
(1% of Sale Value) (20% of Sale Value)
VI Balance Tax to pay/(Refund) (IV-V) 5,00,000 (14,00,000)

 From the above example it’s clear that the Non-Resident first will pay Tax to Department and then will claim refund.

Is this only resort for Non-residents?

“Section 195 (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 to the Assessing Officer to determine, by general or special order, 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.”

Hence as per 195 (2) application can be made by buyer of property to Assessing Officer for lower/ NIL withholding tax/TDS based on Tax Computation as above. In the above example the ideal rate of tax is 6% (6,00,000/1,00,00,000*100) on transfer value of property .

(Author is Partner of G Y & Company & can be reached at goutamjain@gyco.in / 9819418971)

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7 responses to “Withholding tax Impact on Property transaction by Non-Residents Indian/Foreign Nationals”

  1. Sandhya says:

    NRI has purchased immovable property but he has no PAN card. Does he required to deduct TDS? If yes then how would he deposit the same to Govt. in absence of PAN?

  2. Bhavna says:

    I have recvd a letter from requesting linking of PAN to a transaction (final consideration) for purchase of immovable property dated 25 April, 2013 of value in excess of 50 lacs. I am also an NRI. As I understand the 1% deduction is applicable 1st June 2013 onwards. I have not got a notice – only a letter for linking of PAN….
    Q 1) As per my understanding would it be correct to assume that I do not have to pay any late/penalties since my consideration was paid in full before 1st June 2013?
    Q2) SO why have i got this letter ?
    Q3) What should I do ?

  3. Saloni Choudhary says:

    I got my answer after wasting 2 months time. So i think to share it to all of you and trying to post in every article where i visited in last two months. Hopefully you will also get your Answer from following Article :

    https://taxguru.in/income-tax/notices-related-tds-immovable-property-purchase.html

    I found a very useful and informative Article on this topic on TaxGuru, I got answer of my all questions related to this topic. I was searching the answer from last two months on Google, after visiting more than 100 web page this week i found this article which is very informative and covered all most every thing regarding this topic in simple words.

  4. Anita Khanna says:

    The article is good. Please let me know the effect of Clause 6(a) Chapter II of the Finance Act, 2015 in the context of Sec 194 IA.

    Many thanks

  5. Mukul says:

    Great. Thanks for sharing.

  6. Ajrao says:

    This article highlights the tax implication on dealing with Non-residents either it is NRI or NI’s. Therefore, one must be careful in dealing with the Non-residents, and the provisions of section 195 should be remembered on such transatons.

  7. Sundar says:

    Great article.

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