Tuesday, 22 April 2014

Seven Answers A Resident Must Know Before Buying Property From A Non Resident?

Since the immovable property sale by non resident entails payment of sale consideration by the buyer who is resident Indian , tax has to be deducted at source and paid to government as per section 195 of the I T Act before paying the sum to the non resident seller of the property .
1. Who is responsible for deduction of tax?
As per section 195 of the I T Act , the person who is paying any sum to non resident , is responsible for deducting tax before making payment or crediting the payment in his accounts. So, the buyer of the property is responsible for deducting tax.

2.What are the consequences of non deduction of tax?
A resident buyer of the property from a non resident ,but fails to deduct the tax at the time of payment or credit of the amount to his account, shall be liable for penalty equal to the amount of tax not deducted or after deducting not depositing the tax .
A person is also liable for prosecution for such failure.

3.Can the resident buyer be assessed under I T Act for income arising to a non resident?Yes, Clause ( C ) of section 163(1) of the I T Act says

For the purpose of this Act , agent in relation to a non-resident ,
include any person in India –
(c ) from or through
whom the non-resident is in receipt of any income , whether directly or
indirectly ; or……

So , a buyer through whom the income to non-resident arises can be treated as agent of the non-resident and therefore can be assessed as “representative assessee” as per section 160(1) of the I T Act.
4.What is the amount on which tax has to deduct?
Tax at source on Gross amount of payment or only on the gains.
Supreme Court set the confusion at rest by its order in Transmission Corporation (239 ITR 587) where in it has been ruled that tax should be deducted on the income embedded in the payment.
But confusion regarding quantum still remains there , regarding the decision about the computation of gain. The points for confusion for the deductor are knowledge of cost. The seller , may also claim exemption u/s 54 or 54EC , which may make his gains tax exempt, in that case there is no need of deduction of tax .Therefore, solution to sort out such problem are taking one of the following steps :
  1. TDS should be deducted only after making an application in Form 13 before A.O u/s 195(2) for determination of the amount on which tax has to be deducted.
  2. Even Non Resident seller can also make an application in Form 13 before A.O u/s 195(3) for determination of quantum of tax to be deducted .
5. What is the rate of deduction?
The rate of deduction in case of 20 % . plus Education Cess 3 %.
6.When is the amount required to be deducted and deposited?
The amount is required to be deposited
1. Within one week from the end of month in which the payment was made.
2. Within two months from the end of month in which credit was made.
7. What are other formalities under I T Laws to be done?
1. Get a Tax Deduction Number (TAN )by applying in Form 49B to Utitsl or NSDL.2. File a statement of tax deduction in Form 27Q of the I T Act quoting TAN .
3. Issue a certificate of deduction in Form 16A to the Non Resident within one month from the end of month in which payment was made.

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