How Can the Govt Simplify TDS Rules for Buying a NRI House
Purchasing a property in India entails navigating through intricate tax requirements, particularly when dealing with a Non-resident individual (NRI) as the seller.
For resident individual buyers, it is mandatory under the law to withhold tax from the payment made to the seller. However, if the seller is a tax resident in India, the Tax Deducted at Source (TDS) compliance is applicable only if the sales consideration exceeds Rs 50 lakh. In such instances, the buyer must deduct tax at a rate of 1% at the time of payment.
The tax department has introduced a streamlined compliance process, involving the submission of a single Form as a tax payment challan-cum-return under the buyer's Permanent Account Number (PAN). This eliminates the need for a Tax Deduction Account Number (TAN) for the buyer or a separate TDS return filing.
Conversely, when acquiring property from an NRI seller, the TDS compliance requirements become more intricate. In addition to this complexity, the buyer is obligated to deduct tax at the applicable income tax slab rates before making the payment to the NRI seller.
Complete Tax Compliance Procedure When Acquiring Property from an NRI Seller
Obtaining TAN (Tax Deduction Account Number): Under section 203A of the Income Tax Act a buyer is required to have a TAN before TDS deduction. TAN is a 10-digit alphanumeric number. To receive a TAN a person is required to submit the Form online or offline at the Tin Facilitation Center (TIN - FC) handled through the NSDL.
Deposit of tax deducted at source: The buyer must deposit the TDS deducted to the government treasury as payment on or before the 7th day of the subsequent month in which the TDS was deducted from the seller.
E-TDS return filing: Upon completing the TDS deposition, the purchaser is required to submit an e-TDS return (Form 27Q) within the stipulated deadline. This e-TDS return is filed quarterly, with the last day of the month succeeding each quarter's conclusion for the initial three quarters. For the final quarter, the return must be filed by May 31st of the subsequent year. The purchaser has the option to electronically file the e-TDS return after authentication through EVC or a digital signature. Alternatively, an offline TDS return can be lodged at a TIN facilitation centre.
TDS at the Time of Payment: The buyer is required to deduct the TDS at an applicable income tax slab rate (which might work out to be more compared to TDS on the resident seller) while making payments to NRIs.
Issue TDS Certificate: Following the submission of TDS returns, the buyer must furnish a TDS certificate (Form 16A) to the NRI seller within 15 days from the e-TDS return's due date.
Failure to adhere to this process, discrepancies, or any delays may subject the buyer to penalties and interest.
Furthermore, in the context of purchasing a property from a resident seller, TDS compliance is mandatory only if the sales consideration exceeds Rs 50 lakh. However, when dealing with a non-resident seller, there is no such threshold limit for tax deduction. This implies that even if the sales consideration is less than Rs 50 lakhs, the buyer is still obligated to comply with TDS provisions when transacting with NRI sellers.
The acquisition of a property is a non-recurring transaction, and individuals may find themselves compelled to obtain a TAN solely for complying with TDS requirements when purchasing a house from a non-resident seller. In many instances, this TAN may remain unused after the transaction, rendering it inactive and contributing to a growing number of inactive TANs in the income tax system.
Furthermore, the intricacies of TDS compliance often lead individuals to seek assistance from tax experts, resulting in additional expenses. The process of acquiring property from an NRI seller is inherently more complex and time-consuming compared to transactions involving a resident seller. This complexity deters potential buyers from engaging in property transactions with NRIs.
To promote ease of transactions and alleviate compliance challenges in property dealings with NRIs, the government should consider simplifying the TDS compliance process for individual buyers. This could involve aligning the TDS compliance requirements for individual buyers when dealing with both resident and NRI sellers, fostering a more straightforward and uniform approach.
The government should eliminate the requirement for buyers to obtain a TAN when dealing with NRI sellers and allow them to utilize the PAN-based challan-cum-return form, similar to the process for purchasing property from resident sellers. By implementing this simplification, the government can substantially alleviate the burden on buyers involved in acquiring property from NRIs.
This streamlined approach would contribute to a more efficient and uncomplicated process, promoting the seamless purchase of property from NRIs, comparable to transactions with resident sellers. SAG Infotech's Gen TDS return filing software is an efficient tool that enables you to accurately calculate your tax deductions, exemptions, and house property allowances with utmost ease.
With this software, you can also effortlessly compute your TDS amount, ensuring that you comply with the regulations and laws related to TDS filing.
In What Way are the Gains from a Property Sale Taxed for NRI in India?
Non-resident Indians (NRIs) selling property located in India are liable to pay capital gains tax. When an NRI sells property in India, the buyer is required to deduct TDS under Section 195 of the Income Tax Act of 1961. It is important to note that, unlike Section 194IA, the tax deduction rate is not fixed at 1% in this scenario.
The income tax regulations for NRIs concerning capital gains in India are outlined as follows:
Taxation of Short-term Capital Gains (STCG)
When an NRI sells or transfers a capital asset like stocks, securities, or immovable property which is been held for less than 24 months, any resulting gain is deemed a short-term capital gain.
Under the brackets of income tax for the NRIs, the short-term capital gains are to be taxed at applicable rates.
Taxation of Long-term Capital Gains (LTCG)
When a Non-Resident Indian (NRI) disposes of a capital asset held for 24 months or more, any resultant profit is categorized as a long-term capital gain.
In the case of listed securities such as stocks and equity-oriented mutual funds, a 10% long-term capital gains tax is levied without the benefit of indexation if the gains exceed INR 1 lakh in a financial year.
For immovable property and other assets, the long-term capital gains tax is generally imposed at a rate of 20%, accompanied by indexation benefits. However, the specific rates and regulations may vary depending on the type of asset.
Indexation Benefit
The indexation benefit enables the modification of the acquisition cost of an asset to account for inflation during the holding period, thereby mitigating the taxable capital gains.
In the case of long-term capital gains related to assets other than listed securities, the indexed acquisition cost is determined by applying the Cost Inflation Index (CII) as published by the Income Tax Department.
Tax Exemptions and Deductions
Section 54 offers a waiver when selling a residential property and utilizing the proceeds to invest in another property.
Section 54F provides an exemption from capital gains tax for the sale of any asset, excluding residential property, if the proceeds are reinvested in a residential property.
Section 54EC allows a deduction for investing in specified bonds within a designated period to qualify for the exemption from capital gains tax.
Tax Deducted at Source (TDS)
When a Non-Resident Indian (NRI) sells property in India, the purchaser is obligated to withhold Tax Deducted at Source (TDS) on the sale proceeds according to the applicable rates. The TDS rates for NRIs may differ based on the property type and the sales amount.
Frequently Asked Questions on TDS on Sale of Property by Non-Resident (FAQs)
Q1: Which information should be furnished to the Tax Officer?
The Tax Officer will need information including the property's purchase price, the date of acquisition, and any expenses related to renovation or construction.
Q2: What occurs in case more TDS is deducted than the actual tax liability?
If there is an excess deduction of TDS, the seller has the option to claim a refund for the surplus amount during the process of filing their Income Tax Return.
Q3: Which certificate should the buyer provide to the seller?
The buyer should furnish Form 16A to the seller once it is available. This form acts as a certificate for the TDS deduction carried out by the buyer.
Q4: How should TDS be handled in the case of multiple payments for the property?
In instances of multiple payments, TDS should be deducted at the time of each payment and not solely during the property registration process.
Q5: What are the consequences if TDS is incorrectly deducted or not deducted at all?
If TDS is either wrongly deducted or not deducted at all, the Income Tax Department will not take any action against the seller. Instead, the department will pursue the buyer to fulfil the required TDS deposit. If the buyer fails to deduct TDS or deducts an insufficient amount, the Income Tax Department will recover the TDS from the buyer.