TDS ON SALE OF IMMOVABLE PROPERTIES BY NON-RESIDENTS

Due to the rise in Globalisation, many Indian Residents have relocated out of India, but still own their ancestral or personally owned properties in India. For various purposes generally, these persons sell their properties situated in India. As per the Indian Income Tax laws, any capital gain that arises from the sale of immovable property situated in India is taxable in India. This may be short-term capital gain or long-term capital gain. Section 195 of the Income Tax Act, of 1961 cast the responsibility on the buyer of the property to withhold taxes (TDS) while making payment to the seller.

Both the buyer and seller need to ensure compliance with the rules and regulations. The following points are relevant for both parties and must be taken care of before executing any deal.

1. Withholding tax/TDS rate: If there is long-term capital gain then Section 112 of the Income Tax Act will be applicable. The Tax rate prescribed under section 112 is 20% plus applicable surcharge which varies from 10% to 25%  and cess of 4% on basic tax and surcharge.

2. Double Taxation Avoidance Agreement (DTAA): The non-resident person has the option to take the benefits of the DTAA if the DTAA provisions are more beneficial to him. For this, there is a requirement to furnish form 10F & TRC.

 3.Lower Tax Deduction Certificate: If the seller thinks that the tax liability is lower than the TDS rate as prescribed under the law, then section 197 of the Income Tax Act provides an option to Non-residents to apply to the Assessing Officer (AO) in form 13.

4.To obtain TAN and TDS Payment: The buyer is required to obtain the TAN from the Income Tax Department by making an application in form no 49B and the TDS deducted needs to be deposited with the government through the challan within 7 days from the end of the month in which tax has been deducted and then file the TDS return in form 27Q. Non-residents can claim credit for the TDS deducted against their final tax liability while filing their income tax returns.

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