Are there tax implications for purchasing a home from an NRI?

I’m planning to purchase a flat in India from an NRI who relies in Germany. Do I have to deduct TDS earlier than making the ultimate cost? I’m making use of for a financial institution mortgage for a similar. Does the financial institution deduct TDS whereas disbursing the mortgage?             

      — Raja

Under the Indian I-T legislation, if the “vendor” qualifies as “non-resident” in India, the customer is required to deduct TDS at a specified charge on taxable capital good points on the sale of immovable property. The specified charge is 20% (plus relevant surcharge and well being and schooling cess) in case of long-term capital acquire (LTCG) and 30% (plus relevant surcharge and well being and schooling cess) in case of short-term capital good points (STCG).

Any immovable property held for a interval of greater than 24 months is assessed as a long-term capital asset. In case of a long-term capital asset, the taxable capital acquire would be the full worth of sale consideration much less (i) expenditure incurred wholly and completely in reference to such switch (ii) listed price of acquisition (i.e. adjusted as per price of inflation index or CII) and (iii) listed price of the advance. The vendor is entitled to exemption from I-T in respect of LTCG below specified provisions of the Indian I-T legislation topic to achievement of connected circumstances thereon.

Accordingly, you as a purchaser can be liable to deduct TDS on the taxable worth of the capital good points of the vendor and never the financial institution. You want to make sure that applicable TDS is deducted by you earlier than making cost to the non-resident vendor by you or the financial institution.There are penal penalties if there’s a default within the deposit of TDS. Thus, it is rather essential for the customer that the residential standing of the vendor and taxable worth of capital good points (LTCG or STCG) within the fingers of the vendor for TDS functions is calculated precisely.

While computing the capital good points, the customer additionally wants to guage whether or not the stamp obligation worth of the property exceeds 110% of the sale consideration. If so, there are further tax implications for each the customer and vendor just about the shortfall between stamp obligation worth and precise sale consideration. If stamp obligation and registration prices are borne by the vendor, they’ll type a part of the expenditure incurred in reference to the switch and might be deducted whereas computing the capital good points of the vendor.

You might get hold of an affidavit-cum-declaration for residential standing and taxable capital acquire from the vendor. Alternatively, it’s possible you’ll request the vendor to method the I-T officer to calculate taxable capital acquire on the sale of immovable property and/or get hold of a decrease or nil withholding tax certificates.

As a part of TDS compliance on buy of immovable property from a non-resident, you have to to do the next in session together with your tax advisor:

Obtain a Tax Deduction Account Number (TAN);

Deduct TDS on the applicable charge and deposit TDS with the Income-Tax Authorities inside seven days from the tip of the month through which the cost or credit score has been made.

File Form 27Q (withholding tax return) inside 31 days from the tip of the quarter (31 May for the quarter ending March) through which the cost or credit score has been made.

Issue Form 16A inside 15 days from the due date of submitting the withholding tax return.

Sonu Iyer is tax companion and folks advisory companies chief, EY India.

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