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1. TDS on sale of Immovable Property by Indian Resident and Non Resident

TDS WHEN SELLER OF PROPERTY IS INDIAN RESIDENT

Section 194-IA of the Income Tax Act, 1961.

Sec 194-IA deals with TDS on sale of immovable property.

  • 1. Under this section TDS is to be deducted @1% at the time of credit of such sum to the accountof the transferor or at the time of payment of such sum whichever is earlier on sale of immovable property.
  • 2. The transferor or the seller contemplated in this section should be a resident of India. This section only deals with sale of property by residents and TDS @1% is to be deducted on such sale by Indian resident seller provided the consideration for sale of property exceeds Rs. 50 lakhs.
  • 3. “Immovable property” means any land (other than agricultural land) or any building or part of a building.
  • 4. Consideration for transfer of any immovable property shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property;

TDS WHEN SELLER OF PROPERTY IS INDIAN NON RESIDENT

Section 195 of the Income Tax Act, 1961

  • 1. Section 195 talks about sums payable to a non-resident, which are chargeable to taxin India under the Income Tax Act, 1961.
  • 2. When a Non-resident sells an Immovable property in India, Capital gains income may accrue on such sale to the Non-resident, which is chargeable to tax in India. Therefore, the consideration from sale of property in India by a non-resident is chargeable to tax in India and is covered by Section 195 and therefore tax has to be deducted at the time of payment of such consideration.
  • 3. Now the question arises as to the rate of deduction of tax. Sub-section (1) of section 195 prescribes that tax is to be deducted at the rates in force.Rates in force is the rate at which a particular type of income is taxable under theprovisions of the Income Tax Act.As per section 112, Long term capital gains on sale of a capital asset is to be taxed at the rate of 20%.
  • 4. Short-term capital gain on sale of a capital asset (except on sale of equity shares and equity oriented mutual funds) is to be taxed at the slab rates prescribed under the Finance Act applicable to the year of sale.
  • 5. Therefore, here we can draw the conclusion that the buyer/ transferee has to deduct tax on sale of immovable property by the non-resident at the slab rate prescribed in case property is sold within three years of its purchase and at the rate of 20% where property is sold after two years* of its purchase i.e where LTCG accrues.

*The criteria of 36 months have been reduced to 24 months for immovable properties such as land, building and house property from FY 2017-18.


Section 90:

Now as per section 90 of the Income Tax Act’1961, the rates of taxation on taxable income of a non-resident will be as prescribed under the Income Tax Act’1961 or under the DTAA of India with the country of which the non-resident is a resident, whichever is more beneficial to the tax payer.

Therefore, if the rates prescribed for taxation of capital gains in the DTAA are less than the 20% rate or the slab rate, then tax will be deducted at that rate.

However, for availing the benefit of lower rate of deduction of tax under the DTAA, the non-resident transferor will have to furnish a Tax Residency Certificate to the payer indicating the tax residency of which he is a resident.


On what amount is the tax to be deducted?

After determining the rate of tax, now the question arises that on which amount is the tax to be deducted.

The tax is to be deducted on income only i.e on the amount of capital gains arising to the non-resident out of the total consideration.But how will the payer determine the amount of capital gains arising to the non-resident transferee.

The answer lies in sub-sections (2) & (3) of section 195. Under, the provisions of these sub-sections the payer or transferor/payee may make an application to the jurisdictional Assessing officer to determine the sum of capital gains on which tax is to be deducted.

The application to the AO will be made in the prescribed form.

The amount determined by the AO will be the amount on which tax is to be deducted. However, if no such application is made by the payer or the payee to determine the sum chargeable to tax, the tax will be deducted on the entire consideration for sale of immovable property.