The imperative for the government lies in streamlining transaction processes and alleviating compliance challenges associated with purchasing property from NRIs. The complexity arises from the requirement for buyers to acquire a Tax Deduction Account Number (TAN) from the income tax department, a necessary step to deduct and deposit taxes when engaging in property transactions with NRIs. This intricate process poses significant hurdles, impacting the ease with which NRIs can sell their properties. The blog will delve into the necessity for a more straightforward approach, shedding light on potential solutions to enhance the overall property transaction experience for both buyers and sellers involved in NRI transactions.
Buying a house in India involves some tax compliances which get very complex when the seller is a Non-resident individual (NRI).
Every resident individual purchasing property is mandated by law to withhold tax from the payment made to the seller. However, when the seller is a tax resident in India, TDS compliance is applicable only if the sales consideration exceeds Rs 50 lakh. In such instances, the buyer is obligated to deduct tax at a rate of 1% at the time of payment. Additionally, the tax department has introduced a simplified compliance process, involving the submission of a single form along with the tax payment challan-cum-return under the buyer’s Permanent Account Number (PAN). Notably, there is no requirement for the buyer to obtain a Tax Deduction Account Number (TAN) or file a separate TDS return.
On the contrary, when acquiring property from a Non-Resident Indian (NRI) seller, the complexity of TDS compliance increases. In this scenario, the buyer must deduct tax at the prevailing income tax slab rates before disbursing payment to the NRI seller.
The comprehensive tax compliance procedure for purchasing property from an NRI seller is outlined as follows:
Securing TAN (Tax Deduction Account Number):
Prior to deducting TDS, the buyer is required to obtain a TAN in accordance with section 203A of the Income Tax Act. TAN, a 10-digit alphanumeric identifier, can be acquired by submitting a Form online or offline at the Tin Facilitation Centers (TIN-FC) overseen by NSDL.
TDS during Payment:
The buyer is obligated to deduct TDS at the prevailing income tax slab rates during the payment to NRIs, which may be higher than the TDS for a resident seller.
Remittance of Tax Deducted at Source:
The buyer must submit the TDS deducted to the government treasury as TDS payment on or before the 7th of the subsequent month in which the deduction occurred from the seller.
e-TDS Return Submission:
Subsequent to TDS deposition, the buyer is required to file the e-TDS return (Form 27Q) within the stipulated timeframe. This electronic return is filed quarterly with the tax authorities, due by the last day of the month succeeding each quarter for the initial three quarters, and by May 31st following the last quarter. The buyer can electronically submit the e-TDS return after verification through EVC or digital signature. Alternatively, an offline TDS return can be lodged at a TIN facilitation center.
Issuing TDS Certificate:
Following the submission of TDS returns, the buyer is required to provide the TDS certificate (Form 16A) to the NRI seller within 15 days from the due date of the e-TDS return.
Failure to adhere to the aforementioned process, instances of discrepancies, or any delays may expose the buyer to penalties and interest.
Furthermore, when buying a residence from a resident seller, TDS compliance is obligatory only if the sales consideration surpasses Rs 50 lakh. However, in the context of procuring property from a non-resident seller, there exists no threshold limit for tax deduction. Consequently, even if the sales consideration is below Rs 50 lakhs, the buyer is still obligated to adhere to the TDS provision when engaging with NRI sellers.
Moreover, when acquiring a property from a resident seller, TDS compliance is mandatory only when the sales consideration exceeds Rs 50 lakh. However, when purchasing a residence from a non-resident seller, there is no specific threshold for tax deduction. Therefore, even if the sales consideration is less than Rs 50 lakhs, the buyer is still required to follow the TDS provision when dealing with NRI sellers.
By implementing such simplifications, the government has the potential to substantially alleviate the burden on buyers involved in property transactions with NRIs. Consequently, this would facilitate a more streamlined and efficient process, promoting a seamless experience for individuals in purchasing property from NRIs, akin to transactions with resident sellers.
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