PERSONAL TAX: TDS different while buying NRI property

In an earlier column I have written about the rule of 1% Tax Deduction at Source (TDS) while buying a property worth more than Rs 50 lakh. But that applies to a resident seller. If you are buying property from a Non-resident Indian (NRI) then it is governed under Section 195 of the Income Tax Act. Let us understand in detail.

As per the TDS rule, a buyer has to deduct tax, that is, TDS, at the rate of 20% of the sale value and deposit it with the government within seven days from the end of the month in which the tax was deducted. The remaining 80% is paid to the NRI seller, which an NRI can claim it back as refund by filing his or her tax return. There is one exception to this rule. If the buyer gets the Certificate of NIL or a Lower Tax Deduction from the I-T officer, then either no tax is deducted or the tax rate could be lower.

Buyer need to deduct TDS at the time of making actual payments. In case payments are made in installments, then TDS needs to be deducted as per the installment schedule. Before making these payments to an NRI, buyer needs to get Form 15CB certificate from a chartered accountant, apart from filing online declaration in the Form 15CA.

While buying a property from a resident seller, the buyer is not required to obtain a Tax Deduction and Collection Account Number (TAN) u/s 203A of the I-T Act. But when you buy a property from an NRI, you need to obtain a TAN. The same can be applied online by filing up Form 49B on NSDL website

Make sure to collect and quote the PAN of the NRI seller. Please note that it is important to quote PAN correctly, as any mistake could land the buyer in trouble.

You can make the TDS payment online by logging on to NSDL site. After making the TDS payment, make sure that you file online TDS return by submitting 27Q Form and file quarterly returns if the payments were made in installments.

Once the TDS return is filed, buyer needs to issue a TDS certificate to the NRI seller, that is, form 16A, within 15 days from the due date of TDS returns.

There are multiple penalties for not deducting or depositing the said TDS in time or quoting incorrect details: -

Rs 10,000 penalty for failure to obtain or quote TAN
Rs 10,000 penalty for failure to quote PAN
Penalty of Rs 200 per day for delay in filing TDS returns1-1.5% interest per month on late payment of TDS amount

Please note that the TDS rule is critical. The tax department has been keeping a close tab on all the property purchases, specially from NRI sellers. The focus is to see whether the buyer has correctly made the TDS payment. In case they find any gap, the department takes stringent action, not against the seller, but against the buyer because the onus is on buyer to make this TDS payment.

In fact, apart from all the penalties mentioned above, the I-T Act even has the provision for imprisonment starting from three months up to seven years.

The writer is, chief gardener, Money Plant Consultancy