While
you are buying the property you have to deducted 1% of TDS and pay to income Tax authority before
Registration of the property .
However 1) if the sale consideration of the property is less than 50 Lakhs or 2) if it is a agricultural land you need not
pay the TDS in advance
If the
property value is more than 50 Lakhs you have to pay the TDS in advance then
only The Sub Registrar will accept your
Document for registration. Pertaining to T.D.S. provision of I T Act, we will see at a glance
Sec
194IA:
(1) Any
person, being a transferee, responsible for paying (other than the person
referred to in section 194LA) to a resident transferor any sum by way of
consideration for transfer of any immovable property (other than agricultural
land), shall, at the time of credit of such sum to the account of the
transferor or at the time of payment of such sum in cash or by issue of a
cheque or draft or by any other mode, whichever is earlier, deduct an amount
equal to one per cent of such sum as income-tax thereon.
(2) No
deduction under sub-section (1) shall be made where the consideration for the
transfer of an immovable property is less than fifty lakh rupees.
(3) The
provisions of section 203A shall not apply to a person required to
deduct tax in accordance with the provisions of this section.
Sec
194-IA deals with TDS on sale of immovable property. Under this section TDS is
to be deducted @1% at the time of credit of such sum to the account of the
transferor or at the time of payment of such sum whichever is earlier on sale
of immovable property.
The
transferor or the seller contemplated in this section should be a resident of
India. Therefore, this section only deals with sale of property by residents anda TDS @1% is to be deducted on such sale by resident seller provided
the consideration for sale of property exceeds Rs. 50 lacs.
Sec 195:
Any
person responsible for paying to a non-resident, not being a company, or to a
foreign company, any interest or any other sum chargeable under the
provisions of this Act shall, at the time of credit of such income to the
account of the payee or at the time of payment thereof in cash or by the issue
of a cheque or draft or by any other mode, whichever is earlier, deduct
income-tax thereon at the rates in force:
[Explanation
2.—For the removal of doubts, it is hereby clarified that the obligation to
comply with sub-section (1) and to make deduction thereunder applies and shall
be deemed to have always applied and extends and shall be deemed to have always
extended to all persons, resident or non-resident, whether or not the
non-resident person has—
(i) a
residence or place of business or business connection in India; or
(ii) any
other presence in any manner whatsoever in India.]
(2)
Where the person responsible for paying any such sum chargeable under this Act
(other than salary) to a non-resident considers that the whole of such sum
would not be income chargeable in the case of the recipient, he may make an
application to the [Assessing] Officer to determine, [by general or
special order], the appropriate proportion of such sum so chargeable, and upon
such determination, tax shall be deducted under sub-section (1) only on that
proportion of the sum which is so chargeable.
[(3)
Subject to rules made under sub-section (5), any person entitled to
receive any interest or other sum on which income-tax has to be deducted under
sub-section (1) may make an application in the prescribed form to
the [Assessing] Officer for the grant of a certificate authorising him to
receive such interest or other sum without deduction of tax under that
sub-section, and where any such certificate is granted, every person
responsible for paying such interest or other sum to the person to whom such
certificate is granted shall, so long as the certificate is in force, make
payment of such interest or other sum without deducting tax thereon under
sub-section (1).
(4) A
certificate granted under sub-section (3) shall remain in force till the expiry
of the period specified therein or, if it is cancelled by the [Assessing]
Officer before the expiry of such period, till such cancellation…..
Section
195 talks about sums payable to a non-resident which are chargeable to tax in
India under the Income Tax Act’1961.
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.
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 the
provisions of the Income Tax Act.
For the
purpose of sale by a non-resident of an immovable property, we will have to see
the rates prescribed for taxation of capital gains.
As per
section 112, Long term capital gains on sale of a capital asset is to be taxed
at the rate of 20%.
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.
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 three years of its purchase i.e where LTCG
accrues.
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.
Tax
Exemptions Section 54 - This section stipulates that if NRI sells a residential
property after three years from the date of purchase and reinvest the proceeds
into another residential property within two years from the date of sale, the
profit generated is exempt to the extent of the cost of new property. To
illustrate - if the capital gains is Rs. 10 lakh and the new property costs Rs.
8 lakh, the remaining Rs. 2 lakh are treated as long term capital gains. The
sold residential property may be either have been self-occupied property or
given on rent. The new property must be held for at least three years. NRIs
cannot invest the proceeds on the sale of a property in India in a foreign
property and still avail the benefit of Section 54. However, some recent
hearings with the appellate authorities have held that exemption can be claimed
under Section 54 even if the new house is purchased outside India. However,
this is not explicitly specified clearly under the law, and it is advisable for
an NRI to consult a tax expert before making any investment decisions outside
India to avail of tax benefits under Section 54. Section 54EC - This section of
the Income Tax Act states that if an NRI sells a long term asset (in this case,
a residential property) after three years from the date of purchase and invests
the amount of capital gains in bonds of NHAI and REC within six months of the
date of sale, he or she will be exempt from capital gains tax. The bonds will
remain locked in for a period of three years. Repatriation General permission
is available to NRIs and PIOs to repatriate the sale proceeds of property
inherited from an Indian resident, subject to certain conditions. If those
conditions are fulfilled, the NRI need not seek the RBI's permission. However,
if the NRI has inherited the property from a person residing outside India, he
or she must seek specific permission from the RBI. The conditions for
repatriation of such funds are not really complicated - the amount per
financial year (April-March) should not exceed USD 1 million, and should be
done through authorized dealers. NRIs must provide documentary evidence with
regard to their inheritance of the property, and a certificate from a chartered
accountant in the specified format. What NRIs must pay attention to is the
income tax implications in their country of residence. Many countries tax their
residents on their income regardless of where it originates from, while others
provide partial or total exemption on capital gains arising on sale of a
residential house if certain conditions are met. The most important point to
ponder is the income tax liability in the country of residence on the amount of
gain, and whether claiming exemption under Sections 54/54F/54EC is really worth
it. The NRI may, in fact, be better off claiming only partial or no tax
exemption on the capital gains in India.
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