Section 195: TDS On Purchase of Property From NRI

Overview

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.

What is section 195 of TDS on Purchase of Property from NRI?

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.

Who is a Non-Resident Indian (NRI)?

As per Section 6 of the Income Tax Act 1961, the NRI is an individual:-

• who has not resided in India for a period of 182 days or more in the previous year
• Also, if the person has not resided in India for a minimum period of 60 days or more in the previous year and 365 days or more during the past 4 years immediately preceding the previous year, the person is said to be a Non-resident in India.

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.

Threshold Limit u/s 195 TDS on Purchase of Property from NRI

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.

Rate of TDS u/s 195 TDS On Purchase of Property from NRI

TDS rates u/s 195, TDS on purchase of property from NRI is as follows:-

Transfer of property took place before 23-07-2024

Example for TDS On Purchase of Property from NRI | section 195

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:-

Revised TDS rates u/s 195 | TDS on Purchase of property from NRI as follows:-

Transfer of property took place after 23-07-2024

Example for TDS On Purchase of Property from NRI | section 195

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:-

Penalties under section 195 | TDS on Purchase of Property from NRI

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:-

• TDS is not deducted: If a deductor has not deducted the TDS from the payment of sale proceeds made to NRI seller, then it charges interest of @1% per month till the date TDS is deducted.
• TDS is deducted but not deposited: If a deductor has deducted the TDS from payment of sale proceeds made to NRI seller, but has not deposited the collected tax to the government, then it charges interest @1.5% from the date when TDS is deducted till the date of deposition.
• Section 234E: The late filing will cause you to pay ₹ 200 per day, depending on the maximum tax due.

Why Choose Bizfoc for TDS?

At Bizdoc, we specialize in providing you the best accounting services in filing your TDS. Here are the reasons why we are known for our services to our clients on filing TDS:

• Assist in suggesting the right documents for TDS filing.
• Providing valuable insights on sections of TDS computations
• Prescribe forms as per the necessity
• Helps in accurate computations for TDS computations and returns
• Tailored advice and guidelines for TDS filing

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.

Conclusion

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.

Frequently Asked Questions