As per section 194IA of Income Tax Act, 1961 Any person being transferee (Buyer) responsible for paying to a resident transferor (Seller) any sum by way of consideration for transfer of any immovable property for a consideration exceeding Rs.50 Lakhs, shall deduct TDS @ 1% of such sum at the time of credit or payment whichever is earlier.
The above mentioned provisions will apply only if payments made to a resident seller. If you are purchasing a property from Non-resident Indian (NRI), then it is governed under Section 195 of the Income Tax Act. Let us understand in detail.
When you purchase a property from NRI, TDS is required to be deducted on “Capital Gains” and not on the “Sale Price”. The Procedure, TDS Rate and compliance's are very different in case of purchase of property from NRI as compared to purchase of property from a Resident Indian seller
TDS Rate on Purchase of Property from NRI:
In case of purchase of property from NRI, TDS under Section 195 is required to be deducted on the Capital Gains as per the below mentioned schedule:-
In case of “Short Term Capital Gains”, this Surcharge and Cess would be added to the applicable Tax Rate as per the Income Tax Slabs in the same manner as explained above for Long Term Capital Gains.
Whether Limit specified under Sec 194IA (50 Lakhs) will be applicable to Section 195:
TDS on purchase of Property from NRI is required to be deducted irrespective of the Transaction Value of the Property. Even if the value of property is less than Rs. 50 Lakhs – TDS is required to be deducted.
Amount on which the TDS is required to be deducted:
The TDS is required to be deducted on Capital Gains, which the seller has to intimate to the buyer. However, this computation of Capital Gains cannot be done by the Seller himself, he shall approach Jurisdictional Income Tax officer and obtain the necessary certificate.
“In case this certificate is not obtained by the seller from Income Tax Officer, the TDS should be deducted on the Total Sale Price and not on the Capital Gains.” Therefore it is very important for the seller to get the certificate from Income Tax Officer.