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Decoding TDS on Sale of Property in India
Are you planning to buy or sell property in India? A buyer is liable to deduct and deposit TDS on payments made to a seller, let's understand in detail.
TDS on sale of property by a resident
As per the Income Tax Act, tax must be deducted at source by the buyer of a property from payments made to a seller who is resident in India. TDS must be deducted on sale of all types of property, except where the property sold is an agricultural land. TDS is applicable when receipts are of more than Rs 50 lakh. This TDS must be deducted @1 per cent by the buyer at the time of making the payment. Do note that no surcharge or cess is applicable on this 1 per cent TDS deducted. TDS must be deposited within 7 days of TDS deduction. A Form 26QB is required to be submitted by the buyer to the income tax department where PAN of both the buyer and seller must be compulsorily specified. This form can be prepared and submitted online and the TDS payment can also be made online. On successful payment a challan counterfoil is generated which will have the CIN and payments details and this proof of payment must be retained by the buyer. Since this payment is made on behalf of the seller and linked to the seller's PAN, it is reflected on the seller's Form 26AS under the head Part F, usually within 7 days. The buyer also has to provide a TDS certificate in Form 16B to the seller. This can be downloaded from the TRACES website.
If the seller does not plan to invest capital gains and has to pay tax on them, a credit for the TDS deducted can be claimed by the seller. This TDS amount appears both in Form 16B issued by the buyer as well as in the seller's Form 26AS. However, if the seller wants to claim capital gains exemption, either he can claim refund of TDS in the tax return by providing details of investment of capital gains. Or he can also obtain a certificate from the assessing officer specifying that no TDS must be deducted on payments made to him and present this certificate to the buyer.
TDS on sale of property by a non-resident
Things are a little complex when a property is sold by an NRI. TDS rate as mentioned above is not applicable to NRIs. In the case of non-residents, reference has to be made to Section 195 of the income tax act. As per this section TDS must be deducted when making payments to a non-resident as per applicable rates. Usually when a property is sold in India, it results in capital gains. These gains can be long term gains when property was held for more than 3 years and short term when property was held for less than 3 years. If the property is inherited the seller must include the time it was held by the original owner for calculating the 3 year period. Long term gains are taxed at 20 per cent. Therefore, when the sale of a property results in a long term gain for the non-resident, TDS must be deducted @ 20 per cent. If the sale results in a short term gain for a non-resident, tax is payable as per the slab rate of income tax applicable.
A person who is non-resident in India, is resident in some other country, where such gains may have to be included as part of his total income. Such gains are usually offered to tax in the country of residence. To avoid double taxation of the same income in two countries, DTAA or Double Taxation Avoidance Agreements have been signed between India and many other countries. The Income Tax Act has laid down that the income of a non-resident must be taxed at rates in the income tax act or rate mentioned in the double tax avoidance agreement between India and the country of residence, whichever is more beneficial to the tax payer.
Therefore, the rates mentioned in DTAA must be cross checked. Where the rates for capital gains taxation in the DTAA are less than the 20 per cent rate or the slab rate, then tax will be deducted at DTAA rate. If the NRI wants to avail this DTAA benefit of lower TDS, the NRI must furnish a Tax Residency Certificate to the buyer. As the name states this certificate specifies where the NRI is considered resident for income tax purposes. This ensures that the correct DTAA is picked for reference of rate applicable. Do note that several disclosures have been added to ITR-2 for assessment year 2015-16, with respect to DTAA benefits claimed by a NRI. Where DTAA benefit has been claimed, details such as name of the country, article of DTAA, rate of tax applied, whether Tax Residency Certificate was obtained or not have to be provided.
A NRI can also take benefit of capital gains exemptions and claim a refund of TDS in the return or obtain a certificate from the income tax department for lower deduction of TDS.
Disclaimer: All information in this article has been provided by Cleartax.in and We are not responsible for the accuracy and completeness of the same.
Decoding TDS on Sale of Property in India
Are you planning to buy or sell property in India? A buyer is liable to deduct and deposit TDS on payments made to a seller, let's understand in detail.
TDS on sale of property by a resident
As per the Income Tax Act, tax must be deducted at source by the buyer of a property from payments made to a seller who is resident in India. TDS must be deducted on sale of all types of property, except where the property sold is an agricultural land. TDS is applicable when receipts are of more than Rs 50 lakh. This TDS must be deducted @1 per cent by the buyer at the time of making the payment. Do note that no surcharge or cess is applicable on this 1 per cent TDS deducted. TDS must be deposited within 7 days of TDS deduction. A Form 26QB is required to be submitted by the buyer to the income tax department where PAN of both the buyer and seller must be compulsorily specified. This form can be prepared and submitted online and the TDS payment can also be made online. On successful payment a challan counterfoil is generated which will have the CIN and payments details and this proof of payment must be retained by the buyer. Since this payment is made on behalf of the seller and linked to the seller's PAN, it is reflected on the seller's Form 26AS under the head Part F, usually within 7 days. The buyer also has to provide a TDS certificate in Form 16B to the seller. This can be downloaded from the TRACES website.
If the seller does not plan to invest capital gains and has to pay tax on them, a credit for the TDS deducted can be claimed by the seller. This TDS amount appears both in Form 16B issued by the buyer as well as in the seller's Form 26AS. However, if the seller wants to claim capital gains exemption, either he can claim refund of TDS in the tax return by providing details of investment of capital gains. Or he can also obtain a certificate from the assessing officer specifying that no TDS must be deducted on payments made to him and present this certificate to the buyer.
TDS on sale of property by a non-resident
Things are a little complex when a property is sold by an NRI. TDS rate as mentioned above is not applicable to NRIs. In the case of non-residents, reference has to be made to Section 195 of the income tax act. As per this section TDS must be deducted when making payments to a non-resident as per applicable rates. Usually when a property is sold in India, it results in capital gains. These gains can be long term gains when property was held for more than 3 years and short term when property was held for less than 3 years. If the property is inherited the seller must include the time it was held by the original owner for calculating the 3 year period. Long term gains are taxed at 20 per cent. Therefore, when the sale of a property results in a long term gain for the non-resident, TDS must be deducted @ 20 per cent. If the sale results in a short term gain for a non-resident, tax is payable as per the slab rate of income tax applicable.
A person who is non-resident in India, is resident in some other country, where such gains may have to be included as part of his total income. Such gains are usually offered to tax in the country of residence. To avoid double taxation of the same income in two countries, DTAA or Double Taxation Avoidance Agreements have been signed between India and many other countries. The Income Tax Act has laid down that the income of a non-resident must be taxed at rates in the income tax act or rate mentioned in the double tax avoidance agreement between India and the country of residence, whichever is more beneficial to the tax payer.
Therefore, the rates mentioned in DTAA must be cross checked. Where the rates for capital gains taxation in the DTAA are less than the 20 per cent rate or the slab rate, then tax will be deducted at DTAA rate. If the NRI wants to avail this DTAA benefit of lower TDS, the NRI must furnish a Tax Residency Certificate to the buyer. As the name states this certificate specifies where the NRI is considered resident for income tax purposes. This ensures that the correct DTAA is picked for reference of rate applicable. Do note that several disclosures have been added to ITR-2 for assessment year 2015-16, with respect to DTAA benefits claimed by a NRI. Where DTAA benefit has been claimed, details such as name of the country, article of DTAA, rate of tax applied, whether Tax Residency Certificate was obtained or not have to be provided.
A NRI can also take benefit of capital gains exemptions and claim a refund of TDS in the return or obtain a certificate from the income tax department for lower deduction of TDS.
Disclaimer: All information in this article has been provided by Cleartax.in and We are not responsible for the accuracy and completeness of the same.