(Photo: iStock)
(Photo: iStock)

If seller is a non resident, 20% TDS is deducted on LTCG from property sale

  • Since there is no social security agreement (SSA) with New Zealand, you may have to make contributions to your PF account both in India as well as New Zealand
  • The Income Tax Act requires a buyer of a property to deduct TDS at the time of making a payment to the seller of the property.

I moved to New Zealand for work in May this year. How does India’s social security pact with this country affect my working status here?

—Kavya Nanda

So far, there is no social security agreement (SSA) between the governments of India and New Zealand. Since there is no SSA with New Zealand, you may have to make contributions to your PF (provident fund) account both in India as well as New Zealand.

However, contribution to a PF account in India is possible if an Indian employer is paying salary to you. Therefore, if you are receiving any salary from your Indian employer, you can continue to make contributions to your PF account in India. You may also make contributions to your social security account in New Zealand.

There is a flat on sale from an NRI which costs around 48 lakh. The seller mentioned that he will be reinvesting the money by buying a new house in India and he will open a capital gains account scheme (CGAS) Type A account in which the purchase amount can be transferred. Since it is a CGAS Type A account, the buyer doesn’t need to deduct the 20% TDS. Is it possible and true or will the buyer have to deduct TDS? Please advise what I should do.

—Prashant Bajpai

The Income Tax Act requires a buyer of a property to deduct TDS at the time of making a payment to the seller of the property. 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 resident 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 a non resident, TDS is deducted at the rate of 20% (plus cess and surcharge, as applicable) in case of long term capital gains and at the rate of 30% (plus cess and surcharge, as applicable) for short-term capital gains. There is no minimum threshold applicable for deduction of TDS; therefore, TDS will apply where the consideration is less than 50 lakh as well. This is laid down as per the provisions of section 195 of the Income-tax Act, 1961.

Where the non-resident intends to claim capital gains exemption or where his total income is below taxable limit, he may request that no TDS be deducted from the payment made to him. For this purpose, he has to make an application to the assessing officer of the income tax department.

Upon receiving the application, the assessing officer will satisfy himself that a lower rate or no TDS must be deducted. He will then issue a certificate specifying the same. The NRI will them submit this certificate to the buyer. The buyer shall keep a copy of the certificate and deduct tax accordingly.

I am a non resident Indian (NRI) living in Australia. Can my relative in India repay my loan that I have availed from an Indian bank? What are the tax implications of doing so? Kindly explain.

— Ketan Patel

There is no restriction placed on having a local relative repay the loan of an NRI. Whether a tax implication will arise between the two of you depends upon the nature of relation, whether this person is a specified relative as per the Income Tax Act or not. Specified relatives are the following:

(a) Spouse of the individual; (b) brother or sister of the individual; (c) brother or sister of the spouse of the individual; (d) brother or sister of either of the parents of the individual; (e) any lineal ascendant or descendent of the individual; (f) any lineal ascendant or descendent of the spouse of the individual; (g) spouse of the persons referred to in (b) to (f).

Taxation will also depend upon how this amount is treated in the books of the local relative.

Archit Gupta is founder and chief executive officer, ClearTax. Send in your queries and views at mintmoney@livemint.com

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