TDS on Sale Of Property where Seller is NRI

TDS on Sale Of Property

 

Understanding TDS on Sale of Property in India

Introduction:

The sale and purchase of property in India involve various financial and legal considerations. One significant aspect that both buyers and sellers must be aware of is the Tax Deducted at Source (TDS) on property transactions. TDS is a mechanism introduced by the Indian government to collect taxes at the source of income. In this blog, we will delve into the details of TDS on the sale of property, its applicability, rates, and other essential aspects that every property buyer and seller should understand.

  1. What is TDS on Sale of Property?

TDS on the sale of property is a provision under the Income Tax Act, 1961, where the buyer is obligated to deduct a certain percentage of the transaction amount and remit it directly to the Income Tax Department. The primary purpose of TDS is to ensure that taxes are collected at the time of property transfer, preventing tax evasion and ensuring timely revenue for the government.

  1. Applicability of TDS:

TDS on the sale of property is applicable when the seller is a resident Indian. If the seller is an NRI, different rules apply, as discussed later in this blog. The TDS rate varies depending on whether the property’s gains are categorized as short-term capital gains (STCG) or long-term capital gains (LTCG).

  1. TDS Rates for Resident Sellers:

Short-term Capital Gains (STCG): If the property is held for less than two years before the sale, the TDS rate applicable is usually 20%. The buyer is required to deduct 20% of the capital gains amount and remit it to the tax authorities.

– Long-term Capital Gains (LTCG): If the property is held for two years or more before the sale, the TDS rate remains 20%, but with indexation benefits. Indexation accounts for inflation during the holding period, reducing the taxable capital gains.

  1. Calculating Capital Gains:

To calculate capital gains, subtract the indexed cost of acquisition from the selling price. The indexed cost is the cost of acquisition adjusted for inflation using the Cost Inflation Index (CII) published by the government.

  1. Complying with TDS Requirements:

As the buyer, it is your responsibility to deduct the applicable TDS amount from the total sale consideration and deposit it to the government. To do this, you will need a Tax Deduction and Collection Account Number (TAN). The TAN must be quoted in all TDS-related documents and transactions.

  1. TDS for ROIs (Resident of Indians):

Requirements of section 194IA

When a buyer buys immovable property (i.e. a building or part of a building or any land other than agricultural land) costing more than Rs 50 lakhs, he has to deduct tax at source (TDS) when he pays the seller. This has been laid out in Section 194-IA of the Income Tax Act since 1st June 2013.

The buyer has to deduct TDS at 1% of the total sale amount. Please note, the buyer is required to deduct TDS, not the seller

TDS is required to be deducted only if total sale price is Rs 50 lakh or more

If the payment is made by instalments, then TDS has to be deducted on each instalment paid.

‘Consideration for immovable’ property shall include all charges like nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to the transfer of the immovable property. This is applicable for immovable property purchased on or after 1 September 2019 as per Budget 2019.

TDS is to be paid on the entire sale amount. 


Example for TDS on Sale of Property, if you have bought a house at Rs 55lakh, you have to pay TDS on Rs 55 lakh and not on Rs 5 lakh (i.e. Rs 55 lakh – Rs 50 lakh). This is applicable even when there is more than 1 buyer or seller. Post the budget 2019 amendment to section 194-IA, in the above example, if on 1 September 2019, you have paid Rs 2 lakh towards parking fee, Rs 1 lakh for water facility fee and Rs 1 lakh for electricity fee, your sale consideration would be Rs 59 lakh (55+2+1+1). You will have to pay TDS on Rs 59 lakh @ 1%. Your TDS payable would be Rs 59,000. 

Buyer of the property need not obtain a TAN (Tax Deduction Account Number) for depositing TDS with the government. You can make the payment using your PAN.

For the purpose of depositing TDS, buyer will have to obtain the PAN of the seller, else TDS must be deducted at 20%.

TDS is deducted at the time of payment (including instalment payments) to the seller

The TDS on the immovable property has to be paid using Form 26QB within 30 days from the end of the month in which TDS was deducted.

After depositing TDS to the government, the buyer is required to furnish the TDS certificate in form 16B to the seller. This is available around 10-15 days after depositing the TDS. The buyer is required to obtain Form 16B and issues the form to the seller. You can check the procedure to generate and download Form16B from TRACES here.

 

7.TDS for NRIs (Non-Resident Indians):

 

When an NRI buys property in India from a resident seller, TDS provisions still apply. The TDS rate is generally 20% of the capital gains. However, NRIs can claim benefits under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence. Under DTAA, they may be eligible for a reduced TDS rate, provided they fulfill certain conditions.

Details as below

 

Particular

Property Sale Price (Rs.)

  

Less than 50 Lakhs

50 Lakhs to 1 Crores

1 Crore to 2 Crores

 

Long Term Capital Gains Tax

20%

20%

20%

(Add)

Surcharge

Nil

10% of above

15% of above

 

Total Tax (incl Surcharge)

20%

22%

23%

(Add)

Health & Ed. Cess

4% of Above

4% of Above

4% of Above

 

Applicable TDS Rate
(incl. Surcharge & Cess)

20.8%

22.88%

23.92%

 

To deduct TDS on sale of Property where Seller is NRI then in this case Buyer need to obtain TAN from NSDL and then Deduct TDS under section 195 (other payment) and deposit with the government withing 7 day from the end of month on which the amount got deducted or due to deducted.

Further after deposited to the government the Buyer need to File a TDs return or File FORM 27Q, and then generate FORM 16 B after 15 days from date of filling of Form 27Q,

(Note- Form 26 QB only applicable to file when and when the Seller is ROI. In case of NRI need to file FORM 27Q

 

  1. Filing TDS Returns and Issuing Form 16B:

 

After deducting the TDS, the buyer must file TDS returns and issue Form 16B to the seller. Form 16B serves as proof of TDS deduction and can be used by the seller while filing their income tax return.

 

Conclusion:

 

Understanding TDS on the sale of property is crucial for both buyers and sellers. As a buyer, complying with TDS provisions ensures adherence to tax laws and avoids any legal complications. As a seller, being aware of TDS rates and procedures allows you to claim appropriate deductions while filing your income tax return. It is essential to seek guidance from tax professionals or chartered accountants to ensure accurate compliance with TDS regulations. Keeping up-to-date with any changes in tax laws will ensure a smooth and lawful property transaction process in India.

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