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.

Filing of ST-3 only for the period 1st April to 30th June 2012

CBEC has clarified that the half year return ST - 3 for the first half of this FY 2012-13 should contain only data for the period from 01.04.2012 to 30.06.2012 (till the negative list is introduced). It has to be filed before 25th of 25th of October 2012. The data for the negative list regime has to be filed in separate format. The revised format and the due date for filing will be announced later.

The circular in this regard is given below:

Filing of ST-3 only for the period 1st April to 30th June 2012

F. No. 137/22/2012-Service Tax

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

(Service Tax Wing)

Room No 263A,  North Block,

New Delhi, 28th September, 2012

To

Chief Commissioner of Customs and Central Excise / Central Excise & Service Tax (All) Directors General of Service Tax /Central Excise Intelligence /Audit/Systems; Commissioner of Customs and Central Excise/ Central Excise and Service Tax/ Service Tax (All)

Madam/Sir,

Subject:  Filing of ST-3 only for the period  1st April to 30th June 2012

In terms of sub-rules (1) and (2) of Rule 7 of the Service Tax Rules, 1994, the half yearly return for the period 1st April to 30th September 2012, is to be filed by  25th October, 2012. In the current financial year , an assessee would have had to give data with respect to specific services  and the corresponding legal provisions for the period 1-4-2012 to 30-6-2012. The data for the period   1-7-2012 to 30-9-2012, would have been with respect to  different services  and the corresponding legal provisions. Combination of  all these provisions into one return would have made the return complex for   the assessees .

2. I am directed to inform you that  it has been decided that assessees have to provide data only for the period 1-4-2012 to 30-6-2012 in the first half yearly return which is due on 25-10-2012. (The data for the period from 1-7-2012 to 30-9-2012 should not be filed . Modifications will be made in the ACES so that any data filed for this period is rejected. Till such time as the modifications are made, ACES will not be accepting returns) Accordingly notification 47/2012 dated 28-9-2012 has been issued today.

3. Data for the period 1-7-2012 to 30-9-2012 will have to be furnished in a return in a revised format. The revised format of the return and the last date for filing it will be indicated separately.

4. The above information may be communicated to departmental officers and assessees.

Hindi version to follow.

Yours faithfully,

 (S.M. Tata)

Commissioner( Service Tax)

Tel/Fax: 011-23092275

New 'Rajiv Gandhi Equity Savings Scheme" launched

The  Union  Finance Minister, Shri. P. Chidambaram approved a new tax saving scheme called “Rajiv  Gandhi Equity Saving Scheme“(RGESS), exclusively for the first time retail investors in securities market. This  Scheme would give tax benefits to new investors who invest up to Rs. 50,000 and whose annual income is  below Rs. 10 lakh.

The Scheme not only encourages the flow of savings and improves the depth of domestic capital markets, but also aims to promote an ‘equity culture’ in India.  This is also expected to widen the retail investor base in the  Indian securities markets.

Salient features of the Scheme are as under:

a. Scheme is open to new retail investors, identified on the basis of their PAN numbers. This includes those who have opened the Demat account but have not made any transaction in equity and /or in derivatives till the date of notification of this Scheme and all those account holders other than the first account holder who wish to open a fresh account.

b. Those investors whose annual taxable income is ≤ Rs. 10 lakhs are eligible under the Scheme.

c. The maximum Investment permissible under the  Scheme is Rs. 50,000  and the investor would get  a 50% deduction of the amount invested from the taxable income for that year.

d. Under the Scheme, those stocks listed under the BSE 100 or CNX 100, or those of public sector undertakings  which are Navratnas, Maharatnas and Miniratnas would be eligible. Follow-on Public Offers (FPOs) of the  above companies would also be eligible under the  Scheme. IPOs of PSUs, which are getting listed in the relevant financial year and whose annual turnover is not less than Rs. 4000 cr for each of the immediate past three years, would also be eligible.

e. In addition, considering the requests from various stakeholders, Exchange Traded Funds (ETFs) and Mutual Funds (MFs) that have RGESS eligible securities as their underlying and are listed and traded in the stock exchanges and settled through a depository mechanism have also been brought under RGESS.

f. To benefit the small investors, the investments are allowed to be made in instalments in the year in which tax claims are made.

g. The total lock-in period for investments under the Scheme would be three years including an initial blanket lock-in period of one year, commencing from the date of last purchase of securities under RGESS.

h. After the first year, investors would be allowed to  trade in the securities in furtherance of the goal of promoting an equity culture and as a provision to protect them from adverse market movements or stock  specific risks as well as to give them avenues to realize profits.

i. Investors would, however, be required to maintain their level of investment during these two years at the amount for which they have claimed income tax benefit or at the value of the portfolio before initiating a sale transaction, whichever is less, for at least 270 days in a year. The calculation of 270 days includes those days pursuant to the day on which the market value of the residual shares /units has automatically touched the stipulated value after the date of debit.

j. The general principle under which trading is allowed is that whatever is the value of stocks / units sold by the investor from the RGESS portfolio, RGESS compliant  securities  of at least the same value  are credited back into the account subsequently. However, the investor is allowed to take benefits of the appreciation of his RGESS portfolio, provided its value, as on the previous day of trading, remains above the investment for which they have claimed income tax benefit.

k. For the purpose of valuation of shares, the closing price as on the previous day of the date of trading will be considered so that new investors are certain about their debits and credits into the account.

l. In case the investor fails to meet the conditions stipulated, the tax benefit will be withdrawn.

Like all financial products which have reached out substantially to the retail investors (post office savings, life insurance policies  etc) through tax benefits, this tax break for direct investment in equity is expected to substantially encourage the retail participation in securities market as well as to enhance their participation in the growth of Indian industry. Entry of more retail investors are expected to further deepen the securities markets as they bring in long-term stable funds, which can counteract the volatility created by the liquidity providers of the market. The  Scheme, thus, also  furthers the goal of financial stability and promotes financial inclusion. Since Exchange Traded Funds and Mutual Funds have also been brought under the Scheme, the Scheme should provide encouragement and re-assurance to the first time investors.

The broad provisions of the  Scheme and the income tax benefits under it have  already  been incorporated as a new Section -80CCG- of the Income Tax Act, 1961, as amended by the Finance Act, 2012.

Department of Revenue  will  notify the Scheme  and SEBI will  issue the relevant circulars to operationalize the Scheme in the next two weeks