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Buyer can deduct TDS even if value of house sold by NRI is less than 50 lakh

  • As per Section 194IA, TDS is deducted at the rate of 1% and this provision is applicable when both the transferor and transferee are residents in India
  • If the NRI intends to claim capital gains exemption, he may request that no TDS be deducted from the payment made to him

Suppose a non-resident Indian (NRI) sells a house for around 48 lakh and mentions that he will reinvest the money by buying a new house in India and will open a Capital Gains Account Scheme (CGAS) Type A account in which the purchase amount can be transferred. Since its a CGAS Type A account, will the buyer need to deduct 20% of tax deducted at source (TDS)?

—Prashant Bajpai

The Income-tax Act, 1961, requires a property buyer to deduct TDS at the time of making the payment to the seller. As per Section 194IA, this TDS is deducted at the rate of 1% and this provision is applicable when both the transferor and transferee are residents in India. In this case, TDS applies if the consideration for the property exceeds 50 lakh.

Where a resident makes a purchase of a property from an NRI, TDS is deducted at the rate of 20% (plus cess and surcharge, as applicable) if there are long-term capital gains; the rate is 30% (plus cess and surcharge, as applicable) in case of short-term capital gains. There is no minimum threshold applicable for deduction of TDS, so TDS will apply where the consideration is less than 50 lakh as well, as per Section 195 of the Act.

If the NRI intends to claim capital gains exemption or if his total income is below the taxable limit, he may request that no TDS be deducted from the payment made to him. For this, he has to make an application to the assessing officer of the tax department. After receiving the application, the assessing officer will verify and satisfy himself that a lower rate of TDS or no TDS must be deducted. Once satisfied, the assessing officer will issue a certificate specifying the same. The NRI will then submit this certificate to the buyer of the property, who shall keep a copy of such certificate and deduct tax accordingly.

Many US citizens living in India maintain some of their assets in the US itself. Are such citizens required to report their US investments in India? If yes, what’s the process of doing so?

—Sam

As per the Income-tax Act, 1961, a person who is a resident in India and who meets the below criteria, is mandatorily required to file income tax return (ITR) in India and report details of all foreign assets and foreign incomes earned in his/her income tax return.

1) A person who has any asset (including financial interest in any entity) located outside India;

2) A person who has signing authority in any account located outside India;

3) A person who has income from any source outside India.

Such income and assets must be mandatorily reported in Schedule FA (foreign assets) while filing ITR in India. Remember that not doing so can invite a notice and penalty from the department.

Archit Gupta is founder and chief executive officer, ClearTax. Queries at mintmoney@livemint.com

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