TDS on Property Sale by Non Resident Indians (NRIs)
Introduction:
The real estate market in India has always been an attractive investment option for Non-Resident Indians (NRIs). With the growing demand for Indian properties, many NRIs have been looking to sell their properties in India. However, as per the Income Tax Act, 1961, any buyer of a property owned by an NRI must deduct tax at source (TDS) before making the payment to the NRI seller. This TDS deduction is made under section 195 of the Income Tax Act, 1961. In this article, we will discuss in detail about TDS deduction for Non-resident property sale under section 195 of the Income Tax Act, 1961.
What is TDS deduction under section 195 of the Income Tax Act, 1961?
As per the provisions of section 195 of the Income Tax Act, 1961, any person responsible for paying any income to a Non-resident or a foreign company is required to deduct TDS. This section applies to any payment made to a Non-resident, whether it is in the form of rent, salary, interest, commission, or any other income.
In the context of the sale of a property, the buyer is responsible for deducting TDS at the time of payment to the NRI seller. The TDS deduction is calculated at the applicable rate, which is 20% for long-term capital gains and 30% for short-term capital gains. However, the actual TDS rate may vary depending on the nature of the property and the period of holding.
Exemptions under section 195:
As per section 195 of the Income Tax Act, 1961, certain exemptions are available from TDS deduction for Non-resident property sale. Let’s take a look at some of these exemptions:
- If the NRI seller has obtained a lower TDS certificate from the Indian Income Tax Department, the buyer is required to deduct TDS at the rate specified in the certificate.
- If the NRI seller is eligible to claim benefits under the Double Taxation Avoidance Agreement (DTAA), the TDS rate can be reduced or exempted based on the provisions of the agreement.
Procedure for TDS deduction under section 195:
The TDS deduction process under section 195 of the Income Tax Act, 1961, involves the following steps:
- The buyer of the property must obtain a Tax Deduction Account Number (TAN) from the Indian Income Tax Department.
- The buyer must determine the applicable TDS rate based on the nature of the property and the period of holding.
- The buyer must deduct the TDS from the payment to the NRI seller.
- The buyer must deposit the TDS amount with the Indian Income Tax Department within 7 days from the end of the month in which the TDS was deducted.
- The buyer must file a TDS return with the Indian Income Tax Department within the due date.
- The NRI seller can claim a refund of the TDS amount by filing an income tax return with the Indian Income Tax Department.
- The TDS payment can be made in the income-tax portal
Penalties for non-compliance with section 195:
Non-compliance with the provisions of section 195 of the Income Tax Act, 1961, can attract penalties and legal consequences. Let’s take a look at some of the penalties for non-compliance:
- Interest: If the TDS is not deducted or deposited on time, the buyer may have to pay interest on the outstanding amount at the rate of 1.5% per month.
- Penalty: If the buyer fails to deduct or deposit the TDS, a penalty of up to the amount of TDS may be levied.
- Prosecution: If the buyer deliberately fails to deduct or deposit the TDS, the buyer may face prosecution under the Income Tax Act, 1961.
Conclusion:
In conclusion, TDS deduction for Non-resident property sale under section 195 of the Income Tax Act, 1961, is an important provision that buyers of property in India must comply with. Failure to comply with the TDS provisions can result in penalties and legal consequences. Buyers must obtain a TAN, determine the applicable TDS rate, deduct the TDS from the payment to the NRI seller, and deposit the TDS amount with the Indian Income Tax Department within the prescribed timelines. NRIs must also be aware of the exemptions available under section 195 and take necessary steps to claim these exemptions. It is always advisable to consult a tax expert for guidance on TDS deduction for Non-resident property sale under section 195 of the Income Tax Act, 1961.