When buying property in India, especially from a Non-Resident Indian (NRI), it is essential to understand the rules surrounding Tax Deducted at Source (TDS). Failure to comply with these rules can lead to hefty penalties and legal consequences. Here’s everything you need to know to ensure you remain compliant and avoid unnecessary financial complications related to TDS on Property Purchase from NRI.
TDS on Property Purchased from a Resident Seller – Section 194-IA
Under Section 194-IA of the Income Tax Act, TDS is applicable when purchasing property from a resident seller:
- Who is responsible for TDS?: The buyer is responsible for deducting TDS.
- Threshold: TDS applies if the purchase price exceeds ₹50 lakh.
- TDS Rate: 1% of the sale consideration or stamp duty value, whichever is higher.
- TDS Payment & Filing: The TDS payment must be made within 30 days using Form 26QB, and a TDS certificate (Form 16B) must be provided to the seller.
- Penalties: Non-deduction or delayed payment of TDS can result in interest, penalties, and prosecution under Section 271C.
TDS on Property Purchased from an NRI – Section 195
When the seller is an NRI, TDS is governed by Section 195. The rules differ from those for resident sellers:
- TDS Rate: When buying property from an NRI, TDS is deducted on the full sale price based on property value, ranging from 13% to 17.81%. For detailed TDS rates, check this blog on Tax deduction and Exemptions for NRIs.
- TAN Requirement: The buyer must obtain a Tax Deduction Account Number (TAN) before deducting TDS.
- Form 27Q: TDS is deducted on the entire sale consideration, not just on capital gains, and Form 27Q must be filed for the transaction.
- Installment Payments: If the property is paid for in installments, TDS must be deducted on each installment.
- NRO Account: The balance sale consideration can be remitted directly to the NRI seller’s NRO account.
How NRIs Can Reduce TDS Deduction
NRIs can apply for a Lower TDS Certificate (Section 197) to reduce TDS deductions:
- Required Documents: Sale agreement, cost of acquisition documents, capital gains computation, and proof of reinvestment (if applicable).
- Duration: The application process takes around 4-6 weeks, so it’s advisable to apply early to avoid excessive TDS deductions.
Consequences of Non-Compliance with TDS Rules
Failure to comply with TDS regulations can lead to severe consequences:
- Interest Charges: 1% per month for non-deduction, and 1.5% per month for non-deposit.
- Late Filing Fees: ₹200 per day for delayed Form 27Q filing.
- Penalty: A penalty equivalent to the TDS amount not deducted under Section 271C.
- Income Tax Scrutiny: Non-compliance can lead to scrutiny by the Income Tax Department.
Best Practices for Buyers of NRI Property
To ensure compliance and avoid penalties, follow these best practices:
- Verify the Seller’s Status: Confirm if the seller is an NRI or a resident before applying the correct TDS rate.
- Obtain TAN: TAN is mandatory for TDS deductions under Section 195.
- Deduct TDS on Full Consideration: Unlike resident transactions, where TDS is deducted only on capital gains, for NRI property sales, TDS is deducted on the full sale price.
- File Form 27Q and Issue Form 16A: Ensure that you file Form 27Q and provide Form 16A to the seller.
- Help NRI Sellers Apply for a Lower TDS Certificate: This reduces unnecessary TDS deductions and ensures compliance.
- Ensure Timely TDS Payment & Filing: TDS should be deposited within 30 days of deduction to avoid penalties.
Conclusion
When buying property from an NRI, compliance with TDS on Property Purchase from NRI regulations under Section 195 is crucial to avoid penalties and legal complications. By ensuring the correct TDS rate, obtaining TAN, filing Form 27Q, and making timely payments, buyers can smoothly navigate property transactions and avoid unwanted issues.
For NRIs, applying for a Lower TDS Certificate can help reduce tax liabilities, making the property transaction more tax-efficient.
Need Expert Assistance?
Navigating the intricacies of property transactions involving NRIs requires expertise. Brivan Consultants offers professional guidance on TDS, NRI property transactions, tax planning, and compliance to ensure hassle-free dealings and optimized tax savings.
Contact us today for personalized advice on NRI property transactions and TDS compliance!
Frequently Asked Questions (FAQs)
Q1: What is the TDS rate for NRI property transactions?
The TDS rate for property transactions involving an NRI seller ranges from 13% to 17.81%, depending on the property value.
Q2: Do I need a TAN to deduct TDS on property purchase from an NRI?
Yes, a Tax Deduction Account Number (TAN) is mandatory for deducting TDS when purchasing property from an NRI.
Q3: Can I deduct TDS in installments if the property is paid in installments?
Yes, TDS should be deducted on each installment of the property payment.
Q4: What form do I need to file for TDS on property purchased from an NRI?
Form 27Q must be filed when deducting TDS on the entire sale consideration from an NRI seller.
Q5: Can the sale amount be transferred directly to the NRI’s account?
Yes, the balance sale consideration can be transferred to the NRI seller’s NRO account after TDS deduction.
Q6: What are the consequences of not deducting TDS correctly?
Failure to deduct or deposit TDS correctly may lead to penalties, interest charges, and scrutiny from the tax department.
