This article is regarding the Tax Deducted at Source (TDS) on Sale of immovable property by Non Residents.
Governing Provisions :
1. Section 195 of Income tax Act 1961 provides that any person responsible for paying to a non resident should withholding TDS at the rates in force : 20% + Surcharges + Cess in case of sale of immovable Property.
Lets take an example :
- Ram a Non resident assessee is planning to sell his house for Rs 2.00 Cr. , It was orginally acquired for 1 Cr. in 2009. Let check the what is the Long term capital gain on this
- As per above calculation you will see there is a Long term capital gain loss of Rs 14.18 lakhs. Thus Ram is actually not required to pay any capital gain tax on this transaction.
- However since the buyer is obligated to withhold the TDS @ 23.92% , i.e Rs 47.84 lakhs actual realization on sale of property will get reduced to Rs 1.52 cr.
- Normal process to claim this TDS back is to wait till the end of the year and file the income tax return and claim the refund. The process will lead to delay of cash inflow by 1 to 2 years there by losing the opportunity cost the amount
So what is the Alternative ?
Lower withholding Certificate (L.D.C) u/s 197
- Section 197 of Income tax Act 1961 provides a relief to such tax payer where an application in Form 13 can be made to Assessing officer.
- After submission of necessary documents AO has the authority to grant lower withholding certificate
- Once the Certificate is granted to the Seller has to share this L.D.C to the buyer so as to enable to deduct TDS at such lower rate. Buyer also has to obtain TAN and file Form 27Q where one needs to mention the L.D.C Certificate number
- In Practice AO will reduce the TDS rate from 20% to a notional rate in the rate of 0% to 3% there by providing huge relief to the taxpayer and remove the hazzle of awaiting for the refund
- As per above calculation you will see Ram was able to unblock Rs 41 lakhs without the need to await till ITR filing and wait for the refund.
- Also note L.D.C application is applicable only if you are selling your immovable property at a notional gain or at a loss.
Documents Required for Application of Lower Withholding Certificate
- ITR Acknowledgment and Form 26AS for preceding 3 Assessment years
- Full Passport Copy
- Tax Computation sheet by authorized person (Ideally in a CA Letter head)
- Bank Statement of all the owners showing the investment in property (Loan certificate if the property is funded via bank loan or combination there off)
- Copy of payment receipts from the builders
- Sale deed copy (At the time of purchase)
- Agreement to Sale
- Current resident address proof (of such foreign country like lease deed)
- Copy of Govt Current Circle Rate and computation there off (Circle rate usually available in respective state government websites)
Timeline for Submissions and grant of Lower withholding Certificate
We have observed Lower withholding Certificate application and grant of certificate normally take 15 days to 1 month. Since TDS is applicable at the time of payment by the buyer, Non Resident's needs to plan the transaction carefully
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