TDS on Purchase of Property from Non-Resident: Section 195 of the IT Act of 1961 is associated primarily with Tax Deducted at Source (TDS) for non-resident Indians.
Per Section 195 of the Act, an Indian tax citizen who acquires assets from a non-resident must deduct the amount of TDS and deposit the money with the Government Of India.
Whatever amount of fee is charged, the remittance documentation is legally mandatory. Any sum owed to Tax is the expenditure incurred that has the element of income and gross amount, the entirety of which may or may not accurately reflect revenue or profits.
Table of Contents
- Who is liable for deducting Tax under Section 195?
- What is the TDS percentage that applies to this section?
- What Is the Payment Structure?
- Computation of the Sum From Which TDS Should Be Withheld
- When should TDS be collected under Section 195?
- Precautions and adherence while buying assets from an NRI
- What is the maximum bound?
Who is Liable for Deducting Tax under Section 195?
Any individual responsible for the payment of a non-resident who is neither a business nor a foreign business must essentially deduct income tax at the prevailing rates.
What is the TDS Percentage that Applies to this Section?
TDS rates fundamentally alter based on whether the asset is a long-term asset or a short-term asset.
- If the asset is possessed by the owner for longer than two years, the profit on selling counts as “Long term Capital Gains,” and TDS is levied at 20% along with the additional surcharges and cess.
- However, suppose the asset is possessed by the owner for a shorter than a period of two years. In that case, the profit on selling automatically falls under “short term capital gains”, and TDS is charged as per the Income Tax Rates bracket contingent on the total income of the seller. Generally, TDS is deducted at 30% plus appropriate surcharge and cess.
What Is the Payment Structure?
- Any interest incurred (not being the Interest indicated in section 194LB, 194LC, and 194LD).
- Some other amount taxable under this Act’s stipulations (but not revenue taxable under the section “Salaries”).
Computation of the Sum From Which TDS Should Be Withheld
Section 195 stipulates that TDS be levied exclusively on revenue earned by a non-resident. In simple terms, the buyer can only deduct TDS on just the quantity of capital gain realized by the non-resident, not on the gross proceeds from the sale.
According to Section 195(2), when the entire sum payable to the non-resident is not subject to taxation for non-residents, he may petition his Assessing Officer to evaluate the acceptable fraction of the total amount taxable. The Income Tax Officer must assess the taxable profit and issue certified documentation indicating the exact amount of the capital gain.
The seller cannot conduct the determination of taxable income and, therefore, must be necessarily undertaken by the Income Tax Officer.
If the documentation is not readily accessible, it is recommended to deduct TDS on the total amount of the sales profits applying the highest tax rate bracket (not neglecting the surcharge and cess).
When Should TDS be Collected under Section 195?
When such total revenue is transferred to the payee’s account or when the transaction is carried out, whichever happens before.
Credit to Interest, payable account, Suspense account, or any other term will be widely deemed to be a credit of such earnings to the payee’s account for this specific purpose.
Payment for this specific function can be made in cash, via cheque or drafts, or any other viable method.
If the Government, a public sector bank, or a public financial institution needs to pay Interest, the tax deduction is allowed only when the payments are made in cash, by cheque, drafts, or any other form.
Precautions and Adherence while Buying Assets from an NRI
- TDS is simply liable for the acquisition of assets from an NRI independent of the transaction size. TDS is applicable even when the asset is priced well below Rs. 50 lakhs.
- To deduct the cost TDS, a purchaser must essentially acquire a TAN (Tax Deduction Account Number). If the asset is bought from a Resident Indian, no TAN is obligatory. Alternatively, TAN is legally necessary if the property is obtained from a Non-Resident Indian.
- TDS must be necessarily deposited within seven days of completing the month for which it was computed. For illustration, if TDS is withdrawn on July 28th, the payment is payable on August 7th.
- The TDS deducted must be submitted initially using Challan No./ITNS 281.
- TDS returns must be filed within 31 days following the end of the quarters from which TDS was levied using TDS Form 27Q.
- TDS authorization documentation must be issued within 15 days of the TDS return’s due date.
What is the Maximum Bound?
Zero, which denotes that there is no maximum restriction.
However, the Tax must be subtracted from the total amount payable to taxation. Consequently, if no amount of money is liable to taxation in India, no tax must be deducted.
There is no TDS under Section 195 on amounts of income taxed under the header ‘Salaries’ or payments fully included under Sections 194LB, 194LC, or 194LD. TDS will be collected at the exact point of payment or credit, whichever happens, earliest.