Parasuram is in the process of selling a self-acquired house property located in Bangalore. He has identified a buyer (Resident in India) for a sale consideration of Rs. 1,20,00,000/- and they plan to complete the sale registration soon. While discussing the next course of course of action, the buyer insisted on deducting TDS at 23.92% on sale consideration for Parasuram as he is NRI.

Parasuram is in the process of selling a self-acquired house property located in Bangalore. He has identified a buyer (Resident in India) for a sale consideration of Rs. 1,20,00,000/- and they plan to complete the sale registration soon. While discussing the next course of course of action, the buyer insisted on deducting TDS at 23.92% on sale consideration for Parasuram as he is NRI.

Parasuram is aware that long term capital gains are taxed at 20% plus applicable surcharge and cess. But he is unable to understand why TDS is deducted on sale consideration and not on actual LTCG.

Taxation of LTCG:

When a house property is held for more than 2 years, the gain arising on sale of such property would be “Long Term Capital Gains”.  Long term capital gains on transfer of house property is taxed at 20% plus applicable surcharge and cess.

Buyer’s responsibility:

In case of a “Resident” seller, the buyer of a property is required to deduct flat TDS @ 1% on sale consideration if the sale consideration is Rs. 50 Lacs or more. In case of NRI seller, the buyer of the property is required to deduct TDS @ 20% plus applicable surcharge and cess on sale consideration without any threshold.

Amount on which TDS is required to be deducted: 

Sec 195 of the Income tax Act, 1961, requires the buyer to deduct TDS on the amount of sale consideration, which could be much higher than the actual tax payable in many cases. But the section also provides a leeway. The seller has an option for a lower deduction of TDS, but the same can be possible only by way of an application made to the jurisdictional Assessing Officer vide Form 13.

If the Assessing Officer, after computing the capital gains by considering the information provided by the assessee is convinced that the amount of tax the transaction would attract is much lower than the proposed 20% TDS (plus applicable surcharge and cess), he may issue a certificate for NIL or Lower deduction of TDS on the transaction.

The NRI Seller can provide this certificate to the buyer to enable the buyer to deduct TDS at a lower rate. It is important to note that, if the lower deduction certificate is not obtained by the seller prior to the transaction, the buyer is required to deduct TDS at 20% plus applicable surcharge and cess on the sale consideration and not on the computed capital gains.

If the TDS is not appropriately deducted, the Income Tax department may recover the same from the buyer with interest and penalties !

Compliance to be kept in mind: 

TAN: 

A buyer who is required to deduct TDS from the amount paid to an NRI is required to obtain a TAN (Tax deduction and collection number) from the Income Tax department. When there are multiple buyers, it is advisable for all the buyers to obtain TAN. 

TDS DEPOSIT: 

TDS deducted should be deposited with the Income Tax department within 7 days from the end of the month in which TDS was deducted. If the TDS is deducted during April 2023, it must be deposited with the Income Tax department on or before May 7, 2023. 

TDS Return: 

Buyer must file a TDS return in Form 27Q. The return must be filed for each quarter during which TDS was deducted. TDS return should be filed within 31 days from the end of the quarter in which TDS was deducted. If TDS is deducted in April 2023, TDS return for the same must be filed on or before July 31, 2023. Any delay in filing TDS return shall attract a penalty (which is computed on a daily basis !) and hence it is important that the TDS returns are filed on time. 

TDS Certificate: 

After filing the TDS return the buyer must furnish FORM 16A to the seller. 

In Parasuram’s case, he has an option to apply for a lower deduction certificate (Form 13) from the Assessing Officer. If he chooses not to take that route, TDS will be deducted at 20% plus surcharge and cess and he may have to file his Income Tax returns in India to claim the excess TDS deducted as refund. 

NRI and related tax issues

In spite of shifting base to different geographies, many Indians keep in touch with their roots, tradition, culture and rituals as that has been the way our DNAs are made!

Income tax as a subject by itself undergoes numerous changes every year and it could be quite cumbersome to keep a tab on the innumerable changes. Recent changes to the Income Tax Act changed the way NRIs are taxed in India. With the introduction of the term “deemed resident”, it becomes all the more important to review the residential status every year. The Income Tax law is more stringent now and has more tools to track and tap information to enable effective taxing of the NRIs.

Being an NRI, you have to deal not with one but with at least two country’s tax laws. We understand your needs and can be of tremendous support in keeping tax compliance in India on track. Our NRI services can help you save time and effort, while also minimizing the risk of penalties and legal issues arising from non-compliance with tax laws.

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CA Chockalingam K
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