TDS provisions for purchase of Immovable Property

1. What are Tax Deduction at Source (TDS) obligations of Non-Resident Indian (NRI) who purchases an immovable property in India?

Ans.

When a NRI purchases an immovable property in India, there are certain Tax Deducted at Source (TDS) provisions that are required to be complied with. TDS provisions requires the NRI buyer/payer of immovable property to deduct TDS and deposit it to the Government of India, on behalf of the Seller/Payee. The rate of TDS is determined basis residential status of Seller and nature of capital gains. The said obligations are  explained for easy reference in the form of chart below:


          

 

For detailed explanation of the compliance requirements, refer FAQ 3

2. What are the exceptions where a NRI Buyer of immovable property will be exempt from the TDS obligations?

Ans.

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

1.      Agricultural Land

2.      Other Immovable Property where Sale Consideration and Stamp Duty Value of such property, 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.   

3. 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 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

(i)

Obtaining PAN by NRI buyer

Yes

Yes

(ii)

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

No

Yes

(iii)

Rate of Tax Deduction (Withholding of tax in India)

1%. of Sale Consideration/ Stamp Duty Value, whichever is higher, if stamp duty value of property or sale consideration exceeds 50,00,000.

 

In case if the builder/seller does not provide PAN to the buyer, then the buyer has to deduct TDS at higher rate i.e., at the rate of 20%.

20% on Long Term Capital Gains*

30% on Short Term Capital Gains*

 

(Please refer Chapter No. 16 on Taxation of Capital Gains on Sale of Immovable Property for the purpose of Short Term Capital Gains and Long Term Capital Gains)

(iv)

Due date to deposit the tax deducted with the Government

Within 30 days from 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

(v)

Mode for deposit of tax deducted

Filing of Form 26QB (challan-cum statement)

Challan No. ITNS 281

(vi)

Form for filing TDS Return by the NRI

Form 26QB within 30 days from the end of month in which the sale consideration/installment is paid.

 

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.

(vii)

Form in which TDS Certificate is to be issued to Seller

Form 16B

Form 16A

(viii)

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

4. What is the amount of Sale Consideration on which the Tax Obligation to deduct TDS arises if the seller is Resident?

Ans.

The amount of Consideration on which TDS is required to be deducted if the seller is Resident is as under:


Ø  Apart from the amount of consideration for purchase of immovable property, shall also include the following payments:

 

i.     club membership fees

ii.    car parking fee

iii.   electricity and water facility fees

iv.   any other charges of similar nature which are incidental to the transfer of such property

 

Ø  In case the Sale Consideration was paid prior to 1st September, 2019, TDS was generally required to be deducted only on amount of sale consideration and not on the above mentioned ancillary payments.

5. NRI purchases property on October 1, 2023 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 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.

6. 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:

  • NRI seller had purchased the property on November 1, 2022 for a consideration of Rs. 50 Lakh; and
  •  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 from November 1, 2022 to October 1, 2023 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 Short Term Capital Gain 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[1] 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, 2023).

However, in absence of aforesaid required information from NRI Seller as assumed above, it is generally seen out of personal experience, that NRI buyer in  absence of amount of capital gains amount, may instead chose to deduct tax @ 34.32%[2] on the sale consideration (as otherwise required under law to deduct tax on capital gains, in order to be conservative and avoid any vicarious TDS liability from the Income-tax Department) (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, 2023); 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, 2023).

[1] Surcharge is applicable only if total income exceeds Rs. 50 Lakh

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


7. When did the relevant TDS provisions of the Act come into existence in case of purchase of immovable property from Resident of India?

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

8. NRI purchases an immovable property from a Builder in India on installment basis. The following is the payment schedule for the property: Date: July 17, 2022; October 2, 2022; February 5, 2023 Amounts: 20 lakh; 35 lakh; 35 lakh respectively. Is NRI buyer liable to deduct tax on the aforesaid payments to the Builder?

Ans.

In the above case, as the aggregate consideration payable to Resident builder by NRI buyer exceeds Rs. 50 lakh, NRI buyer must deduct tax @1% on payment of each installment paid 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, 2022

20,00,000

20,000

19,80,000

On or before August 30, 2022

On or before September 15, 2022

October 2, 2022

35,00,000

35,000

34,65,000

On or before November 30, 2022

On or before December 15, 2022

February 5, 2023

35,00,000

35,000

34,65,000

On or before March 30, 2023

On or before April 15, 2023

Total

90,00,000

90,000

89,10,000

-

 

9. What is the procedure for paying such tax deducted to the Government in the above case?

Ans.

NRI buyer shall need to follow the below steps:

  •          Step 1:

For e-Payment through Challan 26QB (Online):

i.     Log in to your account on the Income Tax e-filing portal. Select e-File > click on e-Pay Tax

ii.    Click on ‘+ New Payment’

iii.   Click on the proceed button on the tab ‘26QB- TDS on Property’ and add necessary details relating to Buyer, Seller, Property Transferred.

iv.   Enter payment details as per the available options (i.e., Net banking, Debit Card, Pay at Bank Counter, RTGS/NEFT and Payment Gateway/UPI) and proceed to complete the payment.

v.    If the payment is made through ‘Pay at Bank Country’ mode and duly coordinating/submitting details to the Authorized bank, the selected Authorized bank will generate the challan details

vi.   If the payment is made by any other mode, a Challan along with Challan Identification Number shall be generated.

  • Step 2: 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 3: Form 16B so generated, shall have to be provided to Resident Seller of the property.


10. 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 or part of 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 or part of 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 till day of furnishing statement subject to fees not exceeding the amount of TDS. 

11. What are the Income tax Implications for a NRI Buyer if any Immovable Property is bought for a consideration less than the Stamp Duty Value?

Ans. Refer FAQ no. 16 and 17 of Gifts.

12. What are the TDS Implications for a NRI Buyer if any Immovable Property is bought from a Resident, for a consideration less than the Stamp Duty Value?

Ans.

  •  Upto March 31, 2022, TDS at the rate of 1% is to be deducted on payment of sale consideration to a resident for transfer of immovable property (other than agricultural land), whereas for the purpose of computation of capital gains/ business income, the sale consideration for the immovable property or the stamp duty registration value, whichever is higher, is to be considered.
  •  In order to remove the said anomaly, from April 1, 2022,  TDS is to be deducted at the rate of 1% of sale consideration or stamp duty value of such property, whichever is higher. In case the consideration paid for the transfer of immovable property and the stamp duty value of such property are both less than fifty lakh rupees, then no tax is required to be deducted.
  •  This can be explained with the help of following example:

 

Sale Consideration

Stamp Duty Value

Implications

Case 1

Rs. 45 Lakhs

Rs. 42 Lakhs

TDS is not required to be deducted as sale consideration/stamp Duty value is less than Rs. 50 lakhs

 

Case 2

Rs. 45 Lakhs

Rs. 48 Lakhs

TDS is not required to be deducted as sale consideration/ stamp Duty value is less than Rs. 50 lakhs.

 

Case 3

Rs. 45 Lakhs

Rs. 54 Lakhs

Upto March 31, 2022, No TDS is required to be deducted as Sale consideration does not exceed Rs. 50Lakhs.

 

From April 1, 2022, TDS is required to be deducted on Rs. 54 lakhs i.e., the Stamp Duty value of the property, as it exceeds Rs. 50 Lakhs, even though the consideration is less than Rs 50 Lakhs.

 

Case 4

Rs. 60 lakhs

Rs. 70 lakhs

Upto March 31, 2022, TDS is required to be deducted on Sale consideration of
Rs. 60 Lakhs.

 

From April 1, 2022, TDS is required to be deducted on Rs. 70 Lakhs i.e., the Stamp Duty Value since the said Value is more than the amount of consideration of Rs 60 lakhs.

 

Case 5

Rs. 80 lakhs

Rs. 75 lakhs

Upto March 31, 2022, TDS is required to be deducted on Sale consideration of
Rs. 80 Lakhs.

 

From April 1, 2022, TDS is required to be deducted on Rs. 80 Lakhs i.e., the Sale Consideration/Stamp duty value, whichever is higher.

 


                                                                                                                                                                                                                              - Updated 10/2023