TDS on buying property from a NRI is a complex subject. The buyer and seller is totally in dark about the TDS to be deducted in the case of buying/Selling an immovable property from NRI. The reason is that the section 194IA talks about TDS on sale of immovable property and sale of property by resident.
Lets have close look on the section 194IA
(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.
When buying a property from NRI TDS is to be deducted from Capital gains not on total sale value.
At what rate TDS should be deducted when buying property from NRI
Section 195 of Income tax or TDS on capital gain is applicable when purchasing a property from NRI. The rate should be as follows.
- Long Term Capital Gains – For property held more than 3 years – 20.6 %
- Short term Capital Gains – For property held less than 3 years – As per Income tax slabs
When TDS is to be deducted
TDS is required to be deducted at the time of making payments including advance payments to NRI irrespective of the total amount paid.That is 50 lakhs limit of TDS on sale of property is not applicable in the case of purchase property from NRI. In short TDS Shall be deducted on each payment made to the seller.
Seller shall intimate the capital gains arising from the sale to the buyer and the buyer should approach his Income tax officer for the calculation of Capital gain. The officer Issue a Capital gain certificate to the seller.The same shall be given to the buyer and he shall deduct TDS based on the certificate issued by the Income tax officer as per rate mentioned above.
Important Point: If the certificate is not obtained from the income tax officer by the seller the TDS shall be deducted on total sale price. So it is mandatory to obtain capital gain certificate to deduct under section 195. However the seller can claim refund of excess TDS paid at the time of Income Tax return.
Other Important Points to Note while purchasing Property From NRI
- The Buyer Must have a TAN No for TDS Deduction. But Seller is not required to possess a TAN.The buyer should apply for a TAN if he does not possess a TAN.
- TDS on Property Deducted shall be deposited to the government on or before 7th of next month of deduction. For Eg: TDS Deduction on September 2016 shall be paid on or before 7th of october 2016.
- The Late Payment of TDS attract 1.5% Interest Per Month.
- The delay in submitting TDS Return attract a fine of Rs 200/per from the default day up to a maximum of 5000.Based on the situation an officer can call a fine up to 1 lakhs.
- The TDS Shall be deposited along with challan No ITNS/281 through NSDL Portal https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp .
- The buyer has to file TDS Form 27Q ,TDS Return filed quarterly. After filing the return the buyer has to issue a Form 16 A to the seller.