TDS compliances on transactions with NRI
In our pervious articles, we have explained the legal aspects for NRI to be considered at the time of selling of property. In this article we will discuss the TDS provisions applicable for the buyer being resident that TDS need to be deducted at the time of purchase of property from an individual being Non Resident.
If a resident is earning the income from the property, say rental income, then the provisions of TDS shall be applicable on selected cases and also TDS would be required to be deducted when it exceeds the prescribed limit. For Example: if a resident is having a rental income from the immovable property or plant and machinery then he shall be required to deduct the TDS under section 194I @ 10% or 2%, as the case may be, when the rental income during the year is Rs.2.4 Lakhs or more.
However, the same is not applicable for non-resident recipients. There is no threshold limit has been defined for applicability of TDS requirement. Hence, all kind of transactions with respect to immovable property with non-residents individual, would be subjected to TDS by the payer in India.
Property transactions with NRIs that attract TDS
TDS shall be required to be deducted by the resident on all kind of payments made to non-resident related to immovable property where any income has been accrued to such non-resident. The transactions can be related to payments of rent to a non- resident or payments for purchase of a property from a NRI. In case of renting of property by the NRI, then the buyer shall require to deduct TDS @30% on the rental amount as per section 195 of Income tax act. Although, in this case, the NRI may request to the income tax officer for deducting the TDS at lower rate. Also, in this case, the buyer will need to submit form 15CA online, mentioning the details of rent.
For Example: Mr. Nikhil (NRI) has let out his flat in Delhi to Mr. Mohit at a monthly
rental of Rs.35,000. Now, Instead of paying the full rental of Rs.35,000 monthly, Mohit shall deduct the TDS @ 30% under section 195 of Income tax act, 1961, which is Rs.10,500 and pay to Nikhil Rs. 24,500 monthly. The TDS deduction of Rs. 10,500 would be required to be submitted to the tax authorities by Mohit and he shall also complete and file Form 15CA online.
The above part is explained in respect of rental income earned by the Non Resident. Now will discuss the income received from the sale of immovable property by the Non Resident in India.
It has been observed that the TDS in respect of Non resident is always a confusing part and most of the person deduct the TDS at incorrect rate and due to which they have to face the interest and penalty.
In simple words, there is bit confusion regarding the deducting of TDS under section 194IA or 194 when a person is buying the property from NRI.
Let me clarify this, TDS shall be required to be deducted @ 1% at the time of However, in case where the resident is buying the property from a NRI then the TDS provision shall be applicable only when the consideration amount exceeds Rs.50 Lakhs. Also, for the computation of Rs.50 Lakhs, all the incidental charges shall be included. The buyer being resident shall deduct the TDS @ 1% under section 194IA of Income tax act, 1961, on the whole of the consideration where the amount of consideration exceeds the limit as specified above. Hence for the deduction of TDS under section 194IA the seller of the property must be the Indian resident which is not possible in case of non-resident. So if the NRI is selling its property in India then the buyer shall not deduct the TDS under section 194IA, instead he shall use the section 195 of Income tax Act, 1961.
Under section 195, if the Non-resident is selling its property in India to the resident then it is mandatory for the buyer of the property to deduct the TDS @ 20.66% TDS on the sale value of the property if the capital gain is the long term capital gain and if it’s a short term capital gain the TDS shall be deducted @ 33.99% of the consideration amount. The buyer shall have to deposit the amount to the Government within 7 days in the next month.
Note: Here the TDS shall be applicable even the sale value of the property is less than Rs.50 Lakhs.
Note: It is important to note that the TDS shall be deducted on the sale value of the property. Practically, NRI sold his property in India when he is unable to manage it and sometimes they sold it on loss, but still the buyer shall deduct the TDS because the requirement of deducting the TDS is on the sale value and not on the capital gain amount.