Purchase of Immovable Property

What are the Income tax obligations of NRI who purchases an immovable property in India?

Ans.

In case NRI purchases an immovable property from a person Resident of India, then NRI buyer is required to comply with the following Income tax obligations:

i. NRI buyer will have to deduct tax @1% on the entire sale consideration (provided the sale consideration exceeds Rs. 50 Lakhs) and after said tax deduction, can make balance payment to the Resident Seller;

ii. Upon aforesaid deduction, NRI buyer will have to file an online Challan-cum-statement (i.e. Form 26QB) as prescribed under Income Tax Rules within 30 days from the end of the month in which aforesaid deduction of tax is made by giving details of the Resident Seller, sale consideration, amount of tax deducted thereof etc. along with payment details of said tax deducted;

iii. The NRI buyer deducting the aforesaid taxes has to quote PAN to file a Challan-cum-statement (i.e. Form 26QB). TAN is generally required to be obtained by person deducting taxes. However, requirement of TAN is not applicable to person deducting taxes (including NRI) on payment to Resident Seller for purchase of immovable property;

iv. After filing of aforesaid Challan-cum-statement, NRI buyer has to produce a Certificate of such tax deduction in the prescribed form (i.e. Form 16B) to the Resident Seller within 15 days from due date of furnishing the Challan-cum-statement (i.e. Form 26QB) as above; and

v. The steps generally involved in deduction and payment of taxes along with filing Challan-cum-statement are briefly explained in ensuing question on the subject.

In case NRI has purchased an immovable property in India from another NRI, then NRI buyer is required to comply with following Income tax obligations:

i. NRI buyer will have to deduct tax on the capital gains arising on sale of an immovable property in India by NRI Seller as per rates prescribed under the Act, which are tabulated as under:

Purchased property from Non-Resident

If Long Term Capital Asset

If Short Term Capital Asset

Deduct Tax @ 20% on capital gains*

Deduct Tax @ 30% on capital gains*



* Plus applicable Surcharge and Health and education cess on Income Tax

ii. NRI buyer deducting taxes on payment to NRI Seller on account of purchase of immovable property in India will be required to obtain PAN as well as TAN for the purpose of deducting and paying taxes to the Government Treasury;
iii. Upon deduction of tax at the applicable rates, NRI buyer will have to deposit said tax deducted to the Government Treasury on or before 7 days  from the end of the month in which aforesaid deduction is made;

iv. After payment of aforesaid taxes, NRI buyer will have to file a statement (i.e. Form 27Q) providing details of NRI Seller, Sale consideration, amount of tax deducted thereof etc. along with payment details of said tax deducted within 30 days  from the end of the relevant quarter in which the tax has been deducted and paid; and

v. After filing of aforesaid statement, NRI buyer has to produce a certificate of such tax deduction in the prescribed form (i.e. Form 16A) to NRI Seller within 15 days from due date of furnishing the statement (i.e. Form 27Q) as above.

NRI purchases property on November 1, 2017 from a Resident Indian for a Sale Consideration of Rs.70 lakh. What are the Income tax obligations for NRI buyer at the time of purchasing property?

Ans.

In the above scenario, the seller of the property is Resident of India and further the sale consideration exceeds Rs.50 lakhs. Therefore, as explained in the foregoing question, NRI buyer will have to deduct tax @ 1% on the entire Sale consideration (i.e. Rs. 70,000, being 1% of 70 Lakh) and deposit the same in the Government Treasury in the form of Challan-cum-statement (i.e. Form 26QB) within 30 days from the end of the month of deduction of tax (i.e. on or before December 30, 2017); and

After filing of aforesaid statement, NRI buyer has to produce a certificate of such tax deduction in the prescribed form (i.e. Form 16B) to the Resident Seller within 15 days from due date of furnishing the Challan-cum-statement (i.e. Form 26QB) as above (i.e. on or before January 15, 2018).

In the above case, if NRI purchases immovable property in India from another NRI for a consideration of Rs.70 lakh, then assuming the following, what are the Income tax obligations for NRI buyer at the time of purchasing property?

Ans.

Assumptions: 

i. NRI seller had purchased the property on November 1, 2016 for a consideration of Rs. 50 Lakh; and

ii. NRI Seller does not have any other source of income in India during the FY.

In the above scenario, immovable property sold by NRI Seller will be considered as a Short Term Capital Asset (as the period of holding is less than 24 months). Further, as NRI Seller had purchased the said property for Rs. 50 lakh and sold it for Rs. 70 Lakh, thereby resulting in STCG of Rs. 20 Lakh;

Therefore, as explained in the foregoing question, NRI buyer will have to deduct tax @ 30% on the capital gains computed above. Further, as the NRI Seller does not have any other source of income in India, such tax shall only be increased  by Health and Education Cess on income tax @ 4%(as Surcharge is applicable only if total income exceeds Rs. 50 Lakh). Accordingly, NRI buyer will deduct tax @ of 31.2% (i.e. Rs. 6,24,000 being 31.2% of Rs. 20 lakh) and deposit the same in the Government Treasury within 7 days from the end of the month in which deduction is made (i.e. on or before December 7, 2017). Alternatively, in absence of aforesaid required information from NRI Seller, there is a possibility that the NRI buyer may deduct tax @ 34.32%  (as Surcharge is applicable @ 10% as income is above Rs. 50 Lakh but below Rs. 1 crore)  on the sale consideration (i.e. Rs. 24,02,400 being 34.32% of 70 Lakh);

Upon deposit of the tax deducted, NRI buyer shall file statement (i.e. Form 27Q) within 30 days from the end of the relevant quarter in which the tax has been deducted and paid (i.e. on or before January 31, 2018); and

After filing of aforesaid statement, NRI buyer has to produce a certificate of such tax deduction in the prescribed form (i.e. Form 16A) to NRI Seller within 15 days from due date of furnishing the statement (i.e. Form 27Q) as above (i.e. on or before February 15, 2018).

NRI purchased an immovable property from a Resident Indian by paying Rs.80 lakh on February 5, 2012. Is he required to deduct tax before making the payment to the Resident?

Ans.

The relevant provisions of the Act explained in the foregoing question provides for 1% deduction of tax in case of purchase of immovable property from Resident of India is applicable w.e.f. June 1, 2013. Accordingly, in the above situation, NRI buyer will not liable to deduct tax on making payment to Resident Seller since NRI buyer has purchased the immovable property prior to June 1, 2013 (i.e. on February 5, 2012).

NRI purchases an immovable property from a Builder in India on instalment basis. Is NRI buyer liable to deduct tax on the payments made to the Builder?

Ans.

Assumptions: 

The NRI makes the following payments to the builder:


Date

Amount (Rs.)

July 17, 2017

20 lakh

October 2, 2017

35 lakh

February 5, 2018

35 lakh

Total

90 lakh


In the above scenario, as the aggregate consideration payable to Resident builder by NRI buyer exceeds Rs. 50 lakh, so NRI buyer must deduct tax @1% on payment of each instalment to the Builder (irrespective of the individual instalment amounts not exceeding Rs. 50 lakh) which is tabulated in below:


Date of Payment

Amount of instalment

 

(in Rs.)

(A)

Amount of tax deduction (in Rs.)

(B)

Balance amount of payment (in Rs.)

(A-B)

Due date of payment of  tax and filing Form 26QB

Due date of issuing Form 16B

July 17, 2017

20,00,000

20,000

19,80,000

On or before August 30, 2017

On or before September 15, 2017

October 2, 2017

35,00,000

35,000

34,65,000

On or before November 30, 2017

On or before December 15, 2017

February 5, 2018

35,00,000

35,000

34,65,000

On or before March 30, 2018

On or before April 15, 2018

Total

90,00,000

90,000

89,10,000

-

 

What is the procedure for paying such tax deducted into the Government Treasury in the above case?

Ans.

NRI buyer shall need to follow the below steps:

•  Step 1: NRI buyer needs to fill an online challan cum statement (Form 26QB) through which he can make an online payment; 

Alternatively, he can make the payment subsequently after uploading the Form 26QB by approaching one of the AD Banks to make the necessary payment;

•  Step 2: A Challan Identification Number shall be generated once the payment has been successfully made; 

•  Step 3: Subsequently, NRI buyer needs to register himself on the TRACES an Income tax department website (i.e. https://www.tdscpc.gov.in) as a tax payer and generate online Form 16B as a certificate for tax deduction; and

•  Step 4: Form 16B so generated, shall have to be provided to the Resident Seller of the property.