Photo: iStock
Photo: iStock

Obtain TAN if you are deducting TDS for rent payment made to non-resident

  • Any person making payment to an NRI is obligated to deduct taxes at the rates in force, at the time of credit of such income to the individual
  • Please note that buying a land is, however, not a specified eligible investment, unless the asset being sold and re-invested is agricultural land

In what cases will tax deducted at source (TDS) on rent paid to a non-resident Indian (NRI) not be deducted? I’m a salaried person paying rent to an NRI. Do I need to get a tax-deduction account number (TAN) for depositing TDS as I don’t have any other use for TAN?

—Name withheld on request

The provisions of deduction of taxes at source on payments made to non-residents are governed by Section 195 of the Income-tax Act, 1961. As per the said provisions, any person making payment to an NRI is obligated to deduct taxes at the rates in force, at the time of credit of such income to the individual.

Further, to carry out these compliances, you would be required to obtain a TAN in India as per Section 203A of the Act.

However, where it is considered that the rent paid by you does not constitute taxable income (either in full or part) in the hands of the payee or landlord, either you or the landlord may make an application in the prescribed form to the Indian tax authorities for a lower tax deduction certificate or nil tax deduction certificate under Section 195(2) and 195(3) read with Section 197 of the Act. Where such certificate is obtained, tax is required to be deducted at the rate prescribed in the certificate for the period specified in the certificate.

I sold a plot in December 2018 and till date I have parked the money in a normal fixed deposit (FD). Now, before 31 July 2020, I will move the money to my capital gains account. Can I buy a land from this money without any tax implications?

—Ashwani

We have assumed that the plot sold by you was not an agricultural land and was a long-term capital asset. As per the Income-tax Act, 1961, long-term capital gains (LTCG) on sale of the plot can be claimed as exempt in the financial year (FY) of earning the LTCG if the amount of LTCG or net sale consideration (as the case may be) is utilized towards the specified eligible investments, within the stipulated timelines and subject to specified conditions. Please note that buying a land is, however, not a specified eligible investment, unless the asset being sold and re-invested is agricultural land.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com

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