TDS on sale of property by NRI

In our last article we discussed about deduction of tax @ 1% on purchase of property if the property value exceeds Rs. 50.00 Lacs. Section 194-IA of the Income Tax Act, 1961 deals with these provisions and provides the compliance requirement for a resident seller. But in case of sale of property by a non-resident section 195 of the income tax applies, which reads as follows: –

“Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act not being income chargeable under the head “Salaries”) 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”

While going through the provisions of section 195 we can make following conclusion: –

1. This section applies for deduction of tax without any minimum slab i.e. limit of Rs. 50.00 Lacs provided for in Section 194-IA in case of domestic seller does not apply in case of NRI seller. TDS has to be deducted in all cases of sale of property —- there is no limit of Rs. 50.00 Lacs.
2. The buyer has to apply for the TAN and also has to comply with the normal provisions of deposition of TDS i.e. 7th of the next month instead of 30 days time provided for in section 194-IA.
3. The buyer also has to file the TDS return as per the normal provisions i.e. within 30 days from the end of the quarter and also has to issue the Form 16A to the seller.
4. Section 195 provides for deduction of tax at the time of credit or payment of such income whichever is earlier i.e. TDS has to be deducted on the income (capital gains) and not on the gross payment. But problem here arises about how to calculate the capital gains. Section 195 does not provide for such calculation mechanism. Assessee himself has to calculate the Capital Gains but the same has to be verified by the Assessing Officer and Section 197 of the Income Tax Act, 1961 provides for the mechanism. In simple language this process is called for applying low rate of TDS Certificate. Any assessee who considers lower tax has to be deducted on the income attributable to him instead of the rates prescribed in the various sections of the Income Tax Act then the assessee has to apply to the Assessing officer in form no. 13 along with following documents: –
   1. Power of Attorney
   2. Covering Letter
   3. Last Three Years’ ITR
   4. Computation of Capital Gains/Income
   5. Copy of PAN of Seller
   6. Copy of Passport of Seller/PIO Card
   7. Copy of PAN/TAN of Buyer
   8. Agreement to Sell
   9. Proof of Payment at the time of Agreement
   10. Property papers chain
   11. Proof of Payment at the time of purchase of property
5. The seller has to arrange this certificate namely called low rate of TDS certificate and in case he is unable to arrange this certification from the assessing officer then tax at full value of transaction will be deducted @ 20% (as applicable in case of Capital Gains) plus surcharge and Health/Education Cess as applicable cess as per his/her slab of income i.e. surcharge @ Nil if Gross income is less than Rs. 50.00 Lacs, 10% if income ranges from Rs. 50.00 Lacs to Rs. 100.00 Lacs and 15% if income Crosses 100.00 Lacs. Health and Education Cess is fixed @ 4% in case of all assessees.
6. Benefit of taxation @ 20% applies if the property sold is long term but in case the property in question is held for less than 2 years then tax at normal rates will be charged.
7. Deduction of TDS is the responsibility of the buyer and not of the seller and if there is short/non-deduction of the tax then the department will issue notice to the buyer and will collect from the buyer for the balance amount.
8. Since it is responsibility of the buyer to deduct tax so the interest @ 1/1.5% pm or part of the month will be charged in case of non deduction/non-deposition of tds to the government exchequer.
9. Buyer is also responsible for filing the TDS return within 30 days from the end of the quarter with the department and in case of delay penalty @ Rs. 200/- per day will be charged.
10. Notwithstanding anything provided in this section seller of property is entitled to claim all the benefits available to him in the chapter of capital gains viz. saving taxation by re-investing in property or bonds etc.
11. Seller can also claim refund of extra tax deducted at the time of sale of property as per normal provisions of income tax.
12. Seller and buyer should file income tax return in the year of sale of property whether or not they are having any income or even if full tax is being deducted to avoid any issuance of notice from the income tax department.