by TDS on Immovable Property Purchase from an NRI in India: A Comprehensive Guide
When buying immovable property from a Non-Resident Indian (NRI), buyers must adhere to specific tax and regulatory compliance to avoid penalties. This blog simplifies the process, focusing on the TDS deduction and payment rules effective from July 23, 2024, under Section 195 of the Income Tax Act and FEMA regulations.
TDS Deduction on Property Purchase from NRI
Revised TDS Rate:
- From July 23, 2024, buyers must deduct TDS at a rate of 12.5% on the sale consideration.
- Including a 15% surcharge and 4% health and education cess, the effective TDS rate is 14.95%.
Applicability:
- TDS must be deducted on the entire sale consideration unless the NRI seller provides a lower deduction certificate from the Income Tax Department.
- For payments in installments, TDS must be deducted on each installment.
Reporting Compliance:
- TDS deductions must be reported quarterly using Form 27Q.
Payment of Sale Consideration to NRI
Preferred Method: Direct Payment to NRO Account
- FEMA Compliance: Sale proceeds from property transactions involving NRIs must be deposited into their Non-Resident Ordinary (NRO) account.
- Tax Compliance: Deduct TDS before depositing the net amount into the NRO account.
Alternative Method: Payment to Power of Attorney (PoA) Holder
- Allowed only if:
- The PoA explicitly authorizes the power holder to receive the funds.
- The sale deed documents this arrangement.
- Funds are immediately transferred to the NRI’s NRO account without any interim use.
- Risks: Non-compliance with FEMA or improper documentation can lead to scrutiny from regulatory authorities.
Necessary Forms and Certificates
- Form 15CA: Declaration by the buyer regarding TDS compliance.
- Form 15CB: Certificate from a Chartered Accountant confirming tax deduction before remittance.
- Funds in the NRO account can be repatriated abroad (up to USD 1 million annually) after tax clearance.
Checklist for Buyers
- Calculate the TDS amount based on the revised rate of 14.95%.
- Deduct TDS on the total sale consideration or each installment as applicable.
- File Form 27Q quarterly to report TDS deductions.
- Ensure payment is made to the NRI seller’s NRO account.
- File Form 15CA and obtain Form 15CB for compliance before remitting funds.
- If using a PoA holder, ensure proper authorization and immediate transfer of funds to the NRO account.
Compliance Timeline
- TDS Payment: TDS must be deposited with the government within 30 days of deduction.
- Form 27Q Filing: Submit quarterly reports as per the TDS filing calendar.
Professional Recommendations
- Preferred Route: Always deposit the sale consideration directly into the NRI seller’s NRO account. This ensures smooth compliance with FEMA and tax laws.
- POA Route: If unavoidable, ensure explicit authorization in the POA and immediate transfer of funds to the NRO account.
FAQs
1. What is the effective TDS rate on property purchases from NRIs after July 23, 2024?
The effective TDS rate is 14.95%, including a 12.5% base rate, a 15% surcharge, and a 4% cess.
2. Can the buyer deduct TDS on a lower amount if the NRI provides a certificate?
Yes, a lower deduction certificate from the Income Tax Department allows TDS on the specified lower amount.
3. Is TDS required for payments made in installments?
Yes, TDS must be deducted on each installment paid to the NRI seller.
4. Can payment be made to the Power of Attorney (POA) holder?
Yes, but only if explicitly authorized in the POA, with documented evidence in the sale deed, and immediate transfer of funds to the NRI’s NRO account.
5. What are Form 15CA and 15CB?
- Form 15CA: A declaration by the buyer confirming TDS compliance.
- Form 15CB: A certificate from a Chartered Accountant verifying tax deduction before remittance.
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