Things you must know about Income Tax before buying property from Non Resident Indian (NRI)

1. Check whether the seller has PAN: Seller has to necessarily obtain Permanent Account Number (PAN). So, at the time of finalizing the transaction, we suggest you to take a copy of PAN card of the seller. If the seller is not having one, he has to apply for PAN Card.

2. TDS @ 20.60% – If you are buying property (such as site or house or flat) from a NRI, you have to do TDS (Tax Deducted at Source) @ 20% on the sale value of the property. Suppose, you are buying a residential site at Bangalore for Rs.1,00,00,000, then you have to pay Rs.80,00,000 in favor of seller and Rs.20,00,000 in favor of Income Tax department.

3. Obtain TAN – After deducting tax (TDS) you have to remit it to Income Tax department. To remit you have to obtain Tax Deduction Account Number (TAN) from Income Tax department. While remitting the amount you have to quote TAN as well as PAN number of the seller.

4. File e-TDS return and Issue Form 16A – After deduction of tax (TDS), the buyer has to file a statement called e-TDS (Form 27Q). Within 30 days from the end of the month in which the payment is made, Form 16A has to be issued to the seller.

5. What if no TDS is done? The buyer will have to pay an amount equal to the amount of tax not deducted to the Income Tax department.

6. Option for Lower deduction of Tax – The seller or the buyer can apply to Income Tax department (International Tax Ward) for determination of the amount of tax on capital gain. Based on the certificate of lower deduction issued by the Income Tax Officer, the seller can deduct lower taxes. Suppose, the Sale Price is Rs.1,00,00,000 and the indexed cost of purchase of the site is Rs.80,00,000, the difference of Rs.20,00,000 is called as capital gain. On getting a certificate from the Officer stating that the capital gain is Rs.20 Lakhs, the seller can deduct 20.60% on Rs.20 Lakhs.

7. Chartered Accountant Certificate–won’t do for lower deduction of tax. The seller has no option other than obtaining lower deduction certificate from the Income Tax officer. In the event the seller/buyer fails to obtain the certificate, TDS to be done at 20.60% on the sale value.