TDS on Purchase of Property from a Non Resident

TDS on Purchase of Property from a Non Resident

As per Sec 195(1), any person responsible for paying to a non-resident, .....any interest ........... or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof …. whichever is earlier, deduct income-tax thereon at the rates in force.

It may be noted that Sec 195 applies to all – Resident and Non Residents. And there is no threshold limit of exemption as in other cases (e.g. 194C, 194J etc.). It is immaterial whether the payment is made in India or abroad. Even if the payment is made in India in Indian Rupees, or the payment is settled outside India by a NR buyer and NR seller, still, if the payee is a Non-Resident, buyer has to deduct tax.

So if you are paying any “sum” to a Non-Resident, where such sum is chargeable under the Act, you are required to deduct tax. So far as the purchase of property from a Non-Resident is concerned, the transaction of sale of property is chargeable under the act as Capital Gains.  Hence the buyer is liable to deduct tax from the payment made to the seller.

TDS to be deducted on Gross amount paid:

Another important phrase in the section is “sum chargeable under the provisions of the Act”. This means that whatever be the amount paid, we have to deduct tax on that sum, not the profit content of it. In other words, we cannot compute the Long term or short term capital gain and deduct the tax due on it. The liability to deduct tax is on the gross amount paid. This has been held by the Bangalore ITAT in Syed Aslam Hashmi Vs. ITO.

Rate at which tax to be deducted:

As per Sec 195, tax has to be deducted at the ‘rates in force’. ‘Rates in force’ is defined u/s 2(37A)(iii) as the rate specified in the Finance Act or the rate as per the DTAA, whichever is beneficial to the assessee.

So you have to refer the relevant DTAA and find out the rate of tax in each case.

Should the DTAA rate to be increased by Surcharge/Educational cess?

No as decided in DIC Asia Pacific Pte Ltd (Cal ITAT)

What is the there is no capital gain in the transaction?

If there is no capital gain at all in the transaction or the tax payable on capital gain is less that the TDS deducted, then the payer can approach the assessing officer and get a certificate of lower or nil deduction of TDS. This is provided in subsection (2) of Section 195.

Alternatively, u/s 195(3), payee also can approach the AO and get the certificate.

Unless such certificate is not obtained, the payer has to deduct tax, even in case where the property is sold at a loss.