I am planning to buy a residential property from a person who is a resident of Australia for ₹75 lakh. I understand that since the sale consideration exceeds 50 lakhs I have to deduct tax at 1% of the sale consideration. Is my understanding correct? What are the other formalities that I need to comply with while deducting tax at source?
The provision of Section 194IA requires a buyer of immovable property, other than agricultural land, to deduct tax at source @ 1% of the sale consideration if the sale consideration exceeds fifty lakh rupees. This provision applies only when you are buying a property from a resident.
Provision of Section 195 of the Income Tax Act will apply when the seller is a non-resident.
Under Section 195 any person who pays any sum of money to a non-resident and who is taxable in India has to deduct tax on the income portion of the payment being made to the non-resident. For the purchase of property from a resident you have to deduct tax at 1% on the sale consideration of the property only if the consideration for the purchase of the property exceeds 50 lakhs but in respect of property being bought from a non-resident no such threshold limit is prescribed and the buyer has to deduct tax irrespective of the value of the property as long as the seller is making profit on the sale.
Moreover, in case of the purchase of property from a non-resident, the buyer is required to deduct tax at source on the amount of taxable capital gains but for property purchase from a resident tax @ 1% is required to be deducted as a whole of the sale consideration. In case the capital gains are long-term in nature, you have to deduct tax on the income component of the sale consideration at 20% but if the capital gains are short-term in nature, the applicable rate is 30% tax of the short-term capital gains.
As far as a procedure to be following in your case is concerned, you have to obtain a tax deduction account number (TAN), even if this is the only transaction, for depositing the tax deducted from payment made to a non-resident, to the credit of the government, whereas in case of purchase of property from a resident seller, you do not have to obtain any TAN number, you just need PAN number of the seller and the buyer.
The form no. 26QB is treated as challan cum return in case the seller is a resident and no separate TDS return is required to be filed. For buying property from a non-resident even though it is a single transaction you have to obtain a TAN and file a TDS return. I would advise you to seek the help of a Chartered Accountant to comply with the law properly.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and on @jainbalwant on Twitter.
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Published: 23 Mar 2024, 02:30 PM IST