TDS on purchase of property from NRI

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By Hiral Vakil on February 18, 2019

TDS is deducted @ 1% u/s 194IA on sales price when resident individual purchases property from another resident. Form 26QB is filed by the buyer of the property within 30 days from the transfer of the property. However, when a resident purchases a property from NRI, the procedure, TDS rates and compliances are different. The TDS is required to be deducted on Capital Gain Income from such property and not on the sale price, and the rate of TDS is as per section 195 of the income tax act.

What is the TDS Rate on purchase of property from NRI?

As per section 195(1), the tax is to be deducted at the rates in force. The rate in force means the rate at which a particular type of income is taxable under the provisions of income tax act. Hence TDS rate is same as applicable to capital gain income.

In case of Long Term Capital Gains (Property is held for more than 24 months) 20% and Short Term Capital Gains (Property is held for less than 24 months) income tax slab rate applicable to seller.

Below is the table on effective rate of TDS in case of Long Term Capital Gains(LTCG) on property purchased from NRI Individual/ HUF :

ParticularsLTCG is less than 50 LakhsLTCG is from 50 lakhs to 1 CroresLTCG is more than 1 Crores
Capital Gain Tax Rate20%20%20%
Add: SurchargeNil10% of above tax rate15% of above tax rate
Total Tax Rate20%22%23%
Add: Health & Education Cess (w.e.f. 01/04/2018)4% of the total tax rate4% of the total tax rate4% of the total tax rate
Effective TDS Rate20.8%22.88%23.92%

In case of Short Term Capital Gains (STCG), the surcharge and health & education cess are added to the applicable income tax slab rate in the same manner as above.

On what amount TDS is required to be deducted?

TDS is required to be deducted on the capital gains. The seller will be able to determine the amount of capital gain arising in his hand from the sale of the property. The seller needs to intimate the capital gain amount to the buyer for deduction of TDS at the effective applicable rate.

Points to keep in mind:

  • The computation of capital gains cannot be done by the seller himself, it should be done by the income tax officer of the seller.
  • The seller needs to approach his income tax officer and request him to compute his capital gains.
  • Once the computation is done by the officer, a certificate of the same will be issued to the seller.
  • If certificate is not obtained by the seller from the income tax officer, the TDS should be deducted on the total sale price and not on the capital gains.
  • In case of wrong deduction or no deduction of TDS, the buyer of the property will be hold responsible to deposit TDS amount.

What are the compliance requirements?

Following are the compliance to be taken care of:

  • The buyer needs to obtain TAN (Tax Deduction and Collection Account Number) which is different from PAN. The seller is not required to obtain TAN. The buyer needs to apply for TAN before deduction of TDS.
  • TDS is deducted at the time of making payment to the NRI.
  • The TDS deducted by the buyer is required to be deposited with the government within 7 days from the end of the month in which the TDS has been deducted. TDS shall be deposited along with challan no./ ITNS 281 and can be deposited online through here.
  • Once TDS is deposited, the buyer is required to furnish a TDS Return in Form 27Q. Form 27Q is required to be furnished for each quarter in which the TDS has been deducted. The due date to furnish
    TDS return in form 27Q is 31st day from the end of the quarter in which the TDS has been deducted.
  • The buyer is also required to furnish Form 16A to the seller of property after filing of TDS Return.