Updated on November 26, 2024 12:56:41 PM
Under Section 195 of Income Tax Act | TDS on Purchase of property from NRI when any person (Buyer) purchases any immovable property from a Non-resident Indian (NRI) Tax Deducted at source (TDS) is required to be deducted by the Buyer on amount paid to the NRI seller. The TDS on purchase of property is a mechanism of levying tax (TDS) by the Indian customer (buyer) when purchasing immovable property from NRI (seller) and depositing deductible sums to the government. In this article, we will provide you with complete insights on TDS under Section 195 and Form 27Q.
Under Section 195 of the Income Tax Act 1961, the Tax Deducted at Source (TDS) on the purchase of property from NRIs is the tax that is levied on consideration paid to NRIs who sell a house in India. Under this section, the amount of tax payable depends on whether the gain is Short-Term Capital Gains (STCG) or Long- Term Capital Gains (LTCG). To proceed with the deduction of tax at source (TDS) on purchase of property from NRI, Tax Deduction and Collection Account Number (TAN) is required to be obtained before deduction of TDS under section 195, TDS on purchase of property from NRI.
As per Section 6 of the Income Tax Act 1961, the NRI is an individual:-
If an individual resides for more than 182 days or more in India during the Previous year, then he or she is considered to be an Resident individual.
There is no Threshold limit to deduct TDS on Purchase of property from NRI under section 195 of Income Tax Act. Therefore TDS is required to be deducted from any amount paid to NRI sellers for purchase of immovable property compulsorily.
TDS rates u/s 195, TDS on purchase of property from NRI is as follows:-
Transfer of property took place before 23-07-2024
Particulars | Less than ₹ 50 Lakhs |
₹50 Lakhs - ₹ 1 Crore |
₹ 1 Crore - ₹ 2 Crore |
₹ 2 Crore - ₹ 5 Crore |
Above ₹ 5 Crore |
---|---|---|---|---|---|
TDS rate | 20% | 20% | 20% | 20% | 20% |
Surcharge | Nil | 10% of above rate | 15% of above rate | 15% of above rate | 15% of above rate |
Total Tax (incl. surcharge) | 20% | 22% | 23% | 23% | 23% |
Health and Education cess | 4% of above rate | 4% of above rate | 4% of above rate | 4% of above rate | 4% of above rate |
Effective TDS rate | 20.8% | 22.88% | 23.92% | 23.92% | 23.92% |
Suppose Mr.X is an Non-Resident Indian holding a property for more than 2 years. Mr.Y (Resident buyer) who wants to purchase property from Mr.X (NRI seller) at the property value of Rs. 3 Crores. The applicable TDS rate under the given example would be deducted @ 20%, as the property is sold by NRI after 2 years from the date of purchase therefore the asset is said to be a long-term capital asset and the arising gain would be Long-term capital gain, working of TDS is given below:-
Sale consideration | ₹ 3 Crore | |
TDS @ 20% | ₹ 60 Lakhs | |
Surcharge @ 15% on ₹ 60 Lakhs | ₹ 9 Lakhs | ₹ 69 Lakhs |
Cess @ 4% on ₹ 69 Lakhs | ₹ 2.76 Lakhs | |
TDS to be deducted | ₹ 71.76 Lakhs |
Revised TDS rates u/s 195 | TDS on Purchase of property from NRI as follows:-
Transfer of property took place after 23-07-2024
Particulars | Less than ₹ 50 Lakhs |
₹50 Lakhs - ₹ 1 Crore |
₹ 1 Crore - ₹ 2 Crore |
₹ 2 Crore - ₹ 5 Crore |
Above ₹ 5 Crore |
---|---|---|---|---|---|
TDS rate | 12.5% | 12.5% | 12.5% | 12.5% | 12.5% |
Surcharge | Nil | 10% of above rate | 15% of above rate | 15% of above rate | 15% of above rate |
Total Tax (incl. surcharge) | 12.5% | 13.75% | 14.375% | 14.375% | 14.375% |
Health and Education cess | 4% of above rate | 4% of above rate | 4% of above rate | 4% of above rate | 4% of above rate |
Effective TDS rate | 13% | 14.3% | 14.95% | 14.95% | 14.95% |
Suppose Mr.X is an Non-Resident Indian holding a property for more than 2 years. Mr.Y (Resident buyer) who wants to purchase property from Mr.X (NRI seller) at the property value of Rs. 3 Crores. The applicable TDS rate under the given example would be deducted @12.5% (w.e.f 23rd July, 2024), as the property is sold by NRI after 2 years from the date of purchase therefore the asset is said to be a long-term capital asset and the arising gain would be Long-term capital gain, working of TDS is given below:-
Sale consideration | ₹ 3 Crore | |
TDS @ 12.5% | ₹ 37.5 Lakhs | |
Surcharge @ 15% on ₹ 37.5 Lakhs | ₹ 5.625 Lakhs | ₹ 43.125 Lakhs |
Cess @ 4% on ₹ 43.125 Lakhs | ₹ 1.725 Lakhs | |
TDS to be deducted | ₹ 44.85 Lakhs |
For purchasing the property from NRI, as a resident buyer the first step towards filing the TDS is to determine the applicable TDS rate. This is done to ensure that the tax deducted at source (TDS) from sale consideration of the property at the time of purchase should be in tune with Income Tax Act. The rate of TDS on Purchase of property from NRI can be ascertained on the basis of the above given table (Revised TDS rates) which are as per the provisions of Section 195 of Income Tax Act. TDS on Purchase of property from NRI.
The next step is to ensure that the TAN is obtained by the buyer, who will make deductions from the sale proceeds transferred to the seller. This TAN number helps to ensure that the individual is an authorized entity (buyer) and is liable to pay the tax to the central government after deducting the TDS in accordance with section 195, TDS on Purchase of property from NRI. This allows to ensure that the TDS is accurately deducted and gets reflected in the tax returns of both buyer and seller.
Note: In a case where two or more individuals jointly purchase the property by investing funds from their personal sources or through joint loans, each person involved must acquire TAN.
After having all the required credentials, which are mentioned in earlier steps, the next step is deduction of Tax at source (TDS) from the total sale proceeds. In the case of long-term capital assets, the TDS rate is 20% (which is 12.5% w.e.f 23rd July, 2024) of the total sale consideration if the property is held for more than 2 years. While on Transfer of short-term capital assets (property is sold before completion of 2 years) buyer is required to deduct TDS @ 30%.
Upon successfully deducting the TDS from the sale proceeds made to the NRI seller, the buyer should proceed to deposit the TDS to the Income Tax Department within 7 days of the subsequent month in which the deduction is made/payment made to the seller.
For TDS filing, the buyer will file the TDS return using Form 27Q in the next quarter after successfully depositing the TDS amount.
After successfully filing the TDS return, the buyer can obtain Form 16A and provide it to the NRI seller. This is done to meet the tax regulation established by the Income Tax Act.
Where the Non-resident Indian seller believes that no amount or only a partial amount (other than salary) is taxable in India and he believes that TDS is to be done at a Lower/Nil rate he may make an appeal to Assessing officer (AO) under Form 13 for obtaining a Lower deduction/ Nil deduction certificate. Now, AO will enable the deductor or payer to deduct the TDS at a much lower rate.
The TDS return must be filed quarterly after depositing the TDS amount. Non-adherence to the aforementioned may lead the assessee to pay additional charges, including TDS, interest charges, and late fees, as prescribed under government guidelines as follows:-
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In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.
Understanding and complying with TDS sections and forms for filing the TDS is crucial for NRIs (Non Resident Indian) to sell property in India. The deduction & deposition of TDS is crucial for maintaining the tax regulations and standards under the Income Tax Act. Compliance with section 195, TDS on Purchase of property from NRI is essential for both payers and recipients to avoid penalties and interest. Filing TDS by an individual himself can be a cumbersome and tiring process, therefore to file the TDS return for the purchase of property from NRI, it is advisable to get the TDS filed with the help of CA professionals and experts to get ease in filing TDS.
The Indian Income Tax Department issues a Lower Deduction Certificate (LDC) to taxpayers who have claimed exemptions or deductions that exceed their real income. Usually, a taxpayer receives this certificate after filing an amended return or after being assessed by the tax authorities.
The difference between Form 27Q and Form 26QB is that Form 26QB is used for filing TDS on the sale and purchase of immovable property under section 194IA. However, the Form 27Q is used as TDS filings for non-salary payments made to NRIs.
Irrespective of whether you are buying a property from a resident or a non-resident Indian, you must possess a Tax Deduction and Collection Account Number (TAN), as stated in Section 195 of the Income Tax Act | TDS on Purchase of property from NRI. In case assessee initiate the deal and deduct the TDS without a TAN, the Income Tax Department may impose a hefty penalty on you.
No, there is no threshold limit for TDS deduction u/s 195 for the purchase of property from NRI.