Owing to an increase in the transactions of purchase and sale of immoveable properties, going unreported and undervalued, the Government felt the need to bring a regulation to improve the reporting of such transactions, with the PAN card number and details of the buyer and seller. The result of the same is Section 194IA. Vide the Union Budget 2013-14, Section 194IA was introduced directing a TDS on Property @ 1% on all Immovable Property Transactions of Rs. 50 Lakhs or more under Section 194IA.
TDS on Sale of Immovable Property
| Particulars | % |
Where Seller is a RESIDENT Any immoveable property (other than agricultural land) provided consideration is Rs.50 lakhs or more – Sec 194IA | 1% of the Sale Consideration |
Where Seller is a NON-RESIDENT and certificate of Capital Gains is obtained from ITO (Sec 195) - Any immovable property | 20% of Capital Gains |
Where Seller is a NON-RESIDENT and no certificate obtained from ITO (Sec 195) - Any immovable property | 20% of the Sale Consideration |
TDS on Sale of Immovable Property by Non-Residents (Sec 195)
The TDS to be deducted on sale of immovable property by a Non-Resident is vastly different from the case of a sale of property by a Resident.
Scope of Taxation on Sale of Immovable Property by Non-Resident
In case of purchase of property from NRI, TDS under Section 195 is required to be deducted on the Capital Gains, if conditions are complied, as below. There is no monetary limit for the purpose of applicability of TDS:
| Particulars | Rate (%) |
| Long Term Capital Gains (i.e. Property held for more than 2 years) | 20% |
| Short Term Capital Gains (i.e. Property held for less than 2 years) | Slab Rate of seller |
For a resident, TDS is applicable only if the sale value is Rs.50 lakhs or more. However, for a non-resident, there is no monetary limit for the purpose of TDS in case of sale of property. Hence, even if the sale value of the property is Rs.5 lakhs and the property is sold by a non-resident, the TDS of 20% u/s 195 will be applicable.
Hence, this TDS is required to be deducted whenever any payment is made to the NRI for purchase of property. Even if any advance is being paid for purchase of property – TDS is required to be deducted on that advance.
Amount on which TDS is deducted – Sale Consideration or Capital Gains
The initial idea is that the TDS is required to be deducted on the Capital Gains. The perception is that the seller will calculate the amount of Capital Gains arising in their owns hands, from sale of this property. Seller shall intimate the same to the buyer, to appropriately deduct the tax on 20% of the amount.
However, this computation of Capital Gains cannot be done by the Seller himself and should be done by the Income Tax Officer ONLY. The Income Tax Officer will issue a certificate with the capital gains taxable, which should be provided to the buyer.
Hence, if the certificate is not obtained by the Seller, then TDS should be deducted at 20% of the Sale Consideration.
| Particulars | % |
Where seller is a NON-RESIDENT and certificate of Capital Gains is obtained from ITO (Sec 195) - Any immovable property | 20% of Capital Gains |
Where Seller is a NON-RESIDENT and no certificate obtained from ITO (Sec 195) - Any immovable property | 20% of the Sale Consideration |
TDS Remittance, TDS Return and PAN No.
TAN No. to be Obtained
Buyer should obtain a TAN No. first. TAN No. is not required in case the property is purchased from a Resident Indian but is required in case the property is purchased from a Non-Resident Indian. A TAN No. is different from a PAN No. Hence, in addition to PAN, a TAN No. must be obtained by the BUYER.
TDS to be Deposited in 7 Days from end of Month of Sale
The TDS so deducted by the buyer shall be deposited with the Govt within 7 days from the end of the month in which the TDS has been deducted vide Challan No./ ITNS 281.
TDS Return to be Filed
After the deposit of TDS, the buyer is required to furnish a TDS Return. This TDS Return is required to be furnished in Form 27Q and is required to be furnished separately for each quarter in which the TDS has been deducted.
This TDS Return is required to be deposited within 31 days from the end of the quarter in which the TDS has been deducted.
Frequently Asked Questions on TDS on Sale of Property by Non-Resident (FAQs)
1. What details to provide the Tax Officer?
The Officer will go through details like Purchase Price, Date of Purchase, any expenses on Renovation/ Construction etc.
2. What if excess TDS is deducted than actual tax payable?
In such a case, the seller can claim refund of TDS at the time of filing of the Income Tax Return.
3. What certificate should the seller collect from the buyer?
Seller should collect Form 16A from the Buyer when it is available.
4. What if multiple payments are made for the property?
Deduct TDS at the time of each payment and not at the time of Registration of Property
5. What if TDS is wrongly Deducted or Not Deducted at all?
If the TDS is wrongly deducted or not deducted, the Income Tax Dept will not do anything to the seller but will catch hold of the buyer of property to deposit the TDS. If the buyer forgot to deduct the TDS or deducted less TDS – the Income Tax Dept will recover the TDS from the buyer.
Conclusion
Hence, it is evident that TDS on sale of property is a very important provision for Sellers/Buyer of Immovable Properties. It is even more important to know the nuanced provisions applicable when it is sold by a non-resident.
Hence, it is important to plan the taxes and remittance of the same, with the assistance of your professional, before the property is sold.
Dr. CA. Abhishek Murali is a Practicing Chartered Accountant and Expert in Taxation and Personal Finance & is the President of the All India Tax Payers’ Association (AITPA)