Are you planning to buy a property from NRI?
While purchasing a property from Non-Resident Indian, the rules are different.
In such cases, tax has to be deducted before making the payment to the seller which is commonly referred to as TDS (tax deducted at source). It is section 195 of Income tax act, 1961 which deals with the case of tax deducted at source on payment to non-resident Indians.
Section 195 states that any person responsible for paying to a non resident any sum chargeable under the act shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by cheque or draft or any other mode, whichever is earlier, deduct income tax thereon at the rates in force.
The Difference of Rules Regarding Purchase from Resident Indians Vis-À-Vis Non-Resident Indians
In general, rules of taxation made for non-resident Indians are distinct from those meant for resident Indians as it relates to the income generated in India. There are multiple differences between TDS on payment to NRIs and that on payment to resident Indians.
The main differences are in the following matters:
1. Rate of TDS
2. Threshold limit
3. Provision for getting permission for lower/nil TDS
Let us examine the aforesaid points one by one.
Rate of tax to be deducted at source
As per section 195, tax is to be deducted at source as per the rate in force while making payment to NRI. The rate in force is defined under section 2 (37A) 111 Finance Act. Currently, the effective rate in force is 20% on the gross sale value, not on the capital gain derived in the sale transaction.
It is to be noted that the recently introduced section 194-1A which deals with the tax deduction at source in real estate transactions is not applicable to the property owned by non-resident Indians but rather for resident Indians. The rate of TDS is only 1% according to section 194-1A, it is 20% as per section 195.
For example, if we buy a property owned by a non-resident Indian for Rs. 30 lacs, tax to be deducted is Rs. 6 lacs and the balance to be paid to the NRI seller is RS.24 lacs only.
Threshold limit
In the case of property owned by resident Indians, TDS becomes applicable only when the amount to be paid to the seller exceeds Rs.50 lacs. This concession of threshold limit is not provided in section 195. This means that in respect of property owned by non-resident Indians, 20% tax is to be deducted regardless of the quantum of sale consideration.
Provision for getting permission for lower/nil TDS
In the case of property owned by non-resident Indians, there is provision for applying to the Assessing Officer for permission for lower/nil TDS. This provision is not applicable for property owned by resident Indians.
The payee may apply in the prescribed form under section 195(3) for grant of a certificate authorizing him to receive the sum with lower/nil TDS. If such a certificate is granted, the person responsible for paying the amount can make the payment with lower/nil TDS.
How to get the refund of TDS under section 195?
Now let us come to the procedure of getting refund of the tax deducted. The person making the payment will obtain a certificate from an accountant in form 15CB. This form can be taken from the website, www.tin-nsdl.com.
Then NRI has to upload the remittance details electronically to the department in form 15CA which should be filled using the information contained in form 15CB. He can then take a print-out of the filled form 15CA with system generated acknowledgement number.
He then has to sign the undertaking 15CA and the certificate 15CB will in turn be submitted in duplicate to Reserve Bank of India/authorized dealer who will forward each copy to Assessing Officer concerned.
In the case where a certificate has been obtained from the Assessing Officer regarding the rate at which tax is to be deducted, certificate from the accountant in form 15CB is not to be obtained.
Who all are liable for TDS under section 195?
Whoever is the payer (viz; Individuals, Hindu Undivided Family, Association of Persons, non-resident Indians, trusts, non-profit organizations); liability to effect TDS under section195 remains the same.
As far as payee is concerned, all non-resident Indians are covered under section 195; but persons who are resident but not ordinarily resident are not covered.
Small Update – Owner is an NRI living outside of india from more than 5+ years.
Thanks!
I am planning to purchase a under construction flat at amount below 35 lakhs. Property is still under construction and no possession is granted to owner as of now.
Can you please let me know the process & tax related points I need to consider.
All execution would happened via Person having Power of Attorney on owner’s behalf (Mother).
Thanks!
~Ajeet
WHAT ARE THE PENALTY PROVISION IF TDS IS NOT DEDUCTED AS PER SECTION 195.
Hi,
My sister is POI living in India. She wants to purchase a property in India from an NRI. The NRI selling the property is selling the same within 2 years of his purchase. Could you clarify as to how much TDS is to be deducted by my sister. The NRI initially said that he would get exemption certificate from IT but now is unable to get. Kindly clarify.
Regards
I am planning to buy property from an Indian who is staying in Singapore for last 5 years. I have been informed by them that the status of person is still indian and hence TDS @ 1% shall be deducted.
Is there any way to check whether TDS according to Indian Resident would be deducted or according to NRI would be deducted.
I am planning to buy a property from NRI at 1 Cr. Please let me know how much tds needs to be deducted. Also let me know how to apply for Lower TDS certificate from Assessing officer
sir i am individual and buying property from NRI and will deduct tax @ 20.6%. I have no TAN. is TAN is required to deposit TDS and on which Challan number
I am buying a property from NRI at 2 Cr. Nett capital gain after indexation is worked out as 50 lac.
Q1 How much TDS amt to be deducted?
Q2 Is there any way so as I get the acknowledgement from IT in advance, deduct above TDS amount from 2 Cr & pay the same amt to IT after registry is done. This query is because my bank will release the loan only the day of sale deed and i need that fund to pay to IT, but as per understanding given to me i need to provide a acknowledgement number while sale deed is done.
I am an NRI. I am selling a property to a resident (~60 lacs). Can you please give me your advice?
1. How much TDS is apliacable and why?
2. What about the provision to re-invest the money in real estate in India. There is a 2 year provision. How do I avoid TDS if I want to re-invest in real estate? Can I apply for exemption at the time of sale with the intention to re-invest within 1 year?
3. What about capital gain bonds? There is a six moth period right? Again, if I am going to do this, can I apply for exemption at the time of sale?
Thank you for any help,
-Shyam
Sir,
Please tell me 1) what if both are NRI? And also
2)after we purchased property from resident of India and if the seller will go out of the country for a year or permanently?
Hi
Thank you for contacting TRANSFORM Property Consulting team.
1. There is no difference in TDS provision for NRI Buyers. The section deals with buying from NRIs and is irrespective of the status of the buyer
2. NRI status is defined on the basis of the number of days in a year the person has spent in India in the past; There is no connection to whether the seller intends to travel in future.
Hope it clarifies.
Team TRANSFORM
AS PER SEC. 195 TAX IS DEDUCTED FROM THE PAYMENT TO NON RESIDENT INDIAN @20% ON ACCOUNT OF SALE OF IMMOVEABLE PROPERTY. IF THE SELLER IS NOR NRI BUT IS ONLY NON RESIDENT, THEN STILL TAX IS TO BE DEDUCTED?
Hi Satyanarayana
Thank you for contacting TRANSFORM Property Consulting. TDS on Property Sale among Resident Indians becomes applicable when the consideration exceeds Rs. 50 lakhs. There are no such exceptions for second sale to the best of our knowledge and the buyer will have to deposit 1% TDS in Seller’s name if the transaction is above Rs. 50 lakhs.
Hope that clarifies!
Regards
TRANSFORM Team
Sir,
is there any exception from TDS on House property purchased on Second sale basis if seller and Buyer are Indians