Many buyers unknowingly fall into a tax trap when purchasing property from Non-Resident Indians (NRIs).
Under Section 195, buyers must deduct TDS before making any payments—including advance or token amounts!
TDS Applicability:
Long-Term Capital Asset– 12.5% (plus surcharge & cess)
Short-Term Capital Asset – 20% (plus surcharge & cess)
Buyer Beware! Failure to deduct TDS can make the buyer an ‘assessee in default’, leading to penalty equal to the amount of TDS itself and interest liabilities in addition thereof.
How to Stay Safe:
Contact your CA and the seller to plan the transaction right from the beginning.
Deduct TDS before making any payment—advance or token included
Request your NRI seller for a ‘Lower Tax Deduction Certificate’ (Form 13) under Section 197
Avoid costly surprises—stay compliant and make informed decisions!
Here are some key tips for buyers:
Verify Seller’s Residential Status – Confirm that the seller is an NRI as per tax laws. TDS under Section 195 applies only to payments made to non-residents.
Deduct TDS on the Full Sale Value – TDS is calculated on gross sale consideration, not just on capital gains. Ensure you deduct 12.5% or 20% + surcharge & cess before making any payment.
Deduct TDS on Every Payment – Even advance payments or token amounts require TDS deduction before transferring funds to the NRI seller.
Deposit TDS Timely – After deduction, deposit TDS with the tax authorities within 7 days from the end of the month in which payment is made.
Request Form 13 for Lower TDS – If the actual tax liability is lower, ask the seller to provide a Lower Tax Deduction Certificate (Form 13) under Section 197.
Seek Professional Guidance – Consulting a tax expert or CA can help navigate compliance and minimize risks.
Following these steps ensures smooth transactions while avoiding legal and financial troubles!