A resident Indian buyer has to comply with a particular set of TDS rules when he is buying property from NRI. The rules are prescribed as per the Indian Income Tax Law.
It is advised to take the assistance of an expert in calculation and filing of TDS return to avoid legal hassles.
It would be easier to understand the nuances of buying property from NRI if we are aware of the correct information.
Read More: Tax implications on a gifted property
First and foremost you should know:
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Who is an NRI seller?
NRI seller of the immovable property for TDS is the one who conforms to the status of NRI as per the Income Tax Law in India. The residential status must be mentioned in the sale deed.
Who is liable to pay TDS?
It is the buyer who pays the TDS.
How is TDS calculated when buying the property?
TDS is calculated on capital gains.
Capital Gains – it is income from profits earned by sale of a property in India.
- Short term Capital Gains: profit from the sale of the property within two years of its purchase.
- Long term Capital Gains: profit earned from the sale of property held for more than two years.
TDS is deducted at the rate of 20% on long term capital gains and 30% on short term capital gains plus surcharge, health and education cess.
In case there is any doubt about the capital gain income, an application can be filed with the income tax authority to know the correct amount. As a precaution, the buyer can ask the seller to bring a certificate from the authorities showing the ascertained amount of capital gain. The buyer must include the details of the same in the sale deed. The residential status must be mentioned in the sale deed. There is a penalty for the buyer if he does not comply with the TDS rules.
For any exemption available to NRI seller for payment of tax, he has to bring evidence of the same and show it to the buyer.
The amount of tax deducted and the rate applied must be mentioned in the sale deed.
What is TAN?
A buyer has to get TAN (tax deduction account number) as he has to deposit tax. The buyer must have his PAN number as well as PAN of the seller also before applying for TAN.
There is a penalty if he TDS is deposited without TAN. In the case of joint purchase, all the buyers must obtain separate TAN.
How to Deposit TDS?
TDS is deducted and deposited by the buyer with the Taxation Department or through an authorized bank. After depositing, the buyer files return by submitting form 27Q and then issues a certificate to the seller.
Deposit of sale proceeds?
The buyer must deposit the amount in the NRO/NCR/FCNR account of NRI.
It is better to execute the sale deed when the NRI is physically present in India. It should be done with a PoA holder in unavoidable circumstances. The buyer is responsible for deducting TDS and depositing the same. He must be careful while buying the property and comply with TDS rules.