CA Goutam Jain
Income 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-
|I||Sale Value of property||1,00,00,000||1,00,00,000|
|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 email@example.com / 9819418971)
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