APPLICABILITY OF TDS ON SALE OF IMMOVABLE PROPERTY BY A NON-RESIDENT

 

Introduction

Sale of property by “Resident Indian”- Where buyer simply pay 1% TDS in form 26QB u/s 194-IA.

When property is sold by “Non-Resident”- Where buyer requires to deduct withholding tax (TDS) as per section 195 of the income tax act. (Rates are provided separately in tabulated format in this article)

What are the Prerequisites for Withholding Tax

• Seller of the property is Non-Resident
• House property situated in India.

APPLICABLE TDS RATE PROPERTY PURCHASE FROM NON-RESIDENT

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TDS rate depends on

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 Nature of the capital

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Nature of capital assets	Holding period	Base TDS Rate on sale of property by NRI
Long term	Sold after 2 years from the date of allotment	20%
Short term	Sold before 2 years from the date of allotment	30%

TDS rated depend on sales consideration:-

In case of Long Term Capital Gain (LTCG)

Particulars	Consideration for Sale (in INR)
	Less than 50 lakh	50 lakh To  1Cr	1cr  to 2 Cr	2Cr  To  5Cr	Above 5Cr
LTCG Tax	20%	20%	20%	20%	20%
+ SC	Nil	10%	15%	25%	37%
Total Tax (incl. SC)	20.00%	22.00%	23.00%	25.00%	27.40%
+ Cess	4%	4%	4%	4%	4%
Final TDS Rate (incl. SC & Cess)	20.80%	22.88%	23.92%	26.00%	28.50%

In case of short Term Capital Gain (STCG)

Particulars	Consideration for Sale (in INR)
	Less than 50 Lakh	50 Lakh to 1Cr	1Cr to 2Cr	2Cr to 5Cr	Above 5Cr
STGC	30%	30%	30%	30%	30%
SC	Nil	10%	15%	25%	37%
Tax Rate (incl. SC)	30%	33%	34.5%	37.5%	41.1%
+ Cess	4%	4%	4%	4%	4%
Final TDS Rate (incl. SC & Cess)	31.20%	34.32%	35.88%	39.00%	42.74%

Above mentioned TDS is applicable on sale consideration / part payments made to the non-resident and not on the amount of capital gains. The legislator has not given the power to the buyer / seller / CA to calculate the amount of capital gains and restrict the TDS on amount of capital gains. This power to determine the amount of capital gains rests with the income-tax authorities.

TDS Rate and Genuine Hardship on Non-Resident Property Seller.

The actual tax liability in the hands of tax payer (non-resident seller) is lesser than the proposed TDS on that transaction, To overcome this situation, Income Tax Act provides for Lower TDS Certificate (or also called as TDS Exemption Certificate) under section 197 of Income Tax Act.
To seek relief in the Withholding Tax Rates, NRI can apply for the Lower TDS Certificate or TDS Exemption Certificate – Section 197 (Form 13) with the Jurisdictional Income Tax Authority.

• This application is submitted in Form 13 (an online application process) of Income Tax Forms.
• NRI applicant need to prepare and arrange various supporting documents for this Lower TDS Certificate. All the documents are submitted with Form 13 Application online.
• On submission of documents, the application moves to the Jurisdictional TDS Certificate Officer. The officer reviews the application and raises observations & further requirements if any.
• On satisfying all the concerns, the officer processes the certificate and allow Lower TDS to the NRI/Foreign citizen in relation to the transaction.
• On receipt of the Lower TDS Certificate (or TDS exemption certificate) the buyer deducts the TDS as per Certificate.
• Hence, through this process NRI/Foreign citizen gets TDS relief before the sale transaction, and avoid blocking of their money with Income Tax Department.

Nostalgically, presently as per departmental internal instruction the lower TDS certificate is being issued at a minimum base rate of 3%, even where the property is being sold at loss.

Key Point to note and avoid hurdles in the future, the rates mentioned in the certificate are always base rates and thus surcharge and cess shall be added to such base rate, failing which income tax department will issue a demand for short deduction for sure through auto system.

DISCLAIMER
[The view presented in above blog/ article is from North Pole Management LLP. We believe that the views put forward are is in sync with applicable laws & regulations prevailing at present. Any discrimination, if found by reader can be reached out to the management of the company on the email ID of Contact@northpolemanagement.in 
One is always welcome to reach out to us for any assistance, help or for advisory services in relation to the above mentioned topic in this article or any related topics relevant to us]