Purchase of Immovable Property

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

Ans.

The Income tax obligations of a NRI who purchases an immovable property in India is liability to deduct TDS and meet the Income Tax Compliance requirements, as explained in the ensuing paragraph given as FAQ c. The rate of TDS is determined based on the residential status of the Seller and the nature of capital gains. The said obligations are succiently explained for your ready reference and ease of understanding in the form of chart below:

What are the exceptions where a NRI Buyer will be exempt from the Income tax obligations?

Ans.

• If the seller is Resident – No obligation to deduct TDS and meet the compliance requirements if purchase of Immovable Property is :

1. Agricultural Land
2. Other Immovable Property where sale consideration is less than Rs. 50 Lakhs.

• If the seller is Non Resident – No exceptions, except if the Tax Exemption Certificate at Nil rate is obtained from the Income Tax Department or Certificate of CA is obtained and is acceptable by both the parties along with Banks (in case of any loan) to that effect.  

What are the Compliance requirements to be fulfilled by a NRI Buyer basis the residential Status of a Seller?

Ans.

The first step is to identify whether the seller is a Resident or a Non Resident as per the Income Tax Laws. For your ready reference and ease of understanding, depending on the residential status of the seller, the compliance requirements are tabulated below:

 

 

Sr.
No

Particulars

If Seller - Resident

If Seller - Non Resident

1.

Obtaining PAN by NRI

Yes

Yes

2.

Obtaining Tax Deduction and Collection Account Number (TAN) by NRI

No

Yes

3.

Rate of Tax Deduction (Withholding of tax in India)

1% on the entire sale consideration/ installment
(if total consideration is more than Rs.50 Lakhs)

20% on Long Term Capital Gains*

30% on Short Term Capital Gains*

(Please refer Taxation of Capital Gains on Sale of Immovable Property for the purpose of Short Term Capital Gains and Long Term Capital Gains)

4.

Due date to deposit the tax deducted with the Government

Within 30 days of the end of month in which the sale consideration/installment is paid

On or before 7 days1 from the end of the month in which the deduction is made

5.

Mode for deposit of tax deducted

Filing of Form 26QB (challan-cum statement)

Challan No.ITNS 281

6.

Form for filing TDS Return by the NRI

Form 26QB

 

Form 27Q is to be filed within 30 days2 from the end of the relevant quarter in which the tax has been deducted and paid.

7.

Form in which TDS Certificate is to be issued to Seller

Form 16B

Form 16A

8.

Time limit to furnish the TDS Certificate

Within 15 days from the due date of filing Form 26QB

Within 15 days from the due date of filing Form 27Q

                                                                                                                                                                     

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

       1. On or before April 30 where the tax is deducted in the month of March

       2. On or before May 31 where the tax is deducted in the quarter ending March 31st


What is the amount of Sale Consideration on which the Tax Obligation to deduct TDS arises if the seller is Resident and the payments are made after 1st September, 2019?

Ans.

In case of purchase of Immovable Property from a Resident after 1st September, 2019, the amount of sale consideration shall also include the following payments :
 
• club membership fees
• car parking fee
• electricity and water facility fees 
• any other charges of similar nature which are incidental to the transfer of such property

What is the amount of Sale consideration on which the tax obligation to deduct TDS arises if the seller is Resident and the payments are made prior to 1st September, 2019?

Ans.

In case the sale consideration was paid prior to 1st September, 2019, TDS was only required to be deducted on the amount of sale consideration. Generally, no TDS were deducted in respect of ancillary payments made such as club membership fee, car parking fee, electricity or water facility fee or any other charges of similar nature which are incidental to the sale of such property.

 

NRI purchases property on October 1, 2020 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?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 with the Government in 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 November 30, 2020 in the present case); and

After filing of aforesaid statement and acceptance thereof by the Income Tax Department, 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 December 15, 2020).

If in the above example, if the NRI paid Rs.2 Lakhs towards parking fee, Rs. 1 lakh for water facility fee and Rs 1 lakh for electricity fee, his sale consideration would be Rs. 74 lakh (70+2+1+1). He will have to pay TDS on Rs. 74 lakh @ 1%. Accordingly, TDS payable would be Rs 74,000.

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, 2019 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%. 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 within 7 days from the end of the month in which deduction is made (i.e. on or before November 7, 2020). Alternatively, in absence of aforesaid required information from NRI Seller, there is a possibility that NRI buyer may deduct tax @ 34.32%  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, 2021); 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, 2020).

*Surcharge is applicable only if total income exceeds Rs. 50 Lakh

**Surcharge is applicable @ 10% as income is above Rs. 50 Lakh but below Rs. 1 crore

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 installment basis. The following is the payment schedule for the property (see table below):

Ans. Table for the above question:


Date

Amount (Rs.)

July 17, 2019

20 lakh

October 2, 2019

35 lakh

February 5, 2020

35 lakh

Total

90 lakh

 

Is NRI buyer liable to deduct tax on the aforesaid payments to the Builder?

In the above case, 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 installment to the Builder (irrespective of the individual installment amounts not exceeding Rs. 50 lakh) which is tabulated in below:

Date of Payment

Amount of installment

(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, 2019

20,00,000

20,000

19,80,000

On or before August 30, 2018

On or before September 15, 2019

October 2, 2019

35,00,000

35,000

34,65,000

On or before November 30, 2018

On or before December 15, 2019

February 5, 2020

35,00,000

35,000

34,65,000

On or before March 30, 2020

On or before April 15, 2020

Total

90,00,000

90,000

89,10,000

-

 

What is the procedure for paying such tax deducted into the Government 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. 

Consequences of non-deduction/ late deduction and non-payment of Tax to the Government?

Ans.

• Non deduction/ Late Deduction of Tax: Interest for late deduction of TDS is applicable at the rate of 1% per month. It is applicable from the date on which tax was deductible to the date of actual deduction.

• Non payment of Tax: Interest for late payment of TDS is applicable at the rate 1.5% per month. It is applicable from the date on which tax was deducted till the date of actual payment.

• Fees for delay in furnishing the statements (26QB): Rs.200 per day until the fees amount not exceeding the amount of TDS.