In continuation of our discussion on TDS under section 195. In this post, we will understand How to Deduct TDS on NRI Under Section 195 by resident Indians?. As per Income Tax Act 1961, Any person responsible for paying to Non Resident or Non Resident Indian, neither being a company nor being a foreign company, of any interest or any other sum chargeable under the provisions of Income Tax Act, 1961 (Excluding income chargeable under the head “Salaries”). Any such payment shall at the time of credit of such income to the account of payee or at the time of payment through any mode i.e. Cash, Cheque, Bankers Cheque, Demand Draft or any other mode should deduct TDS at prevailing TDS Rate under section 195. I modified this definition to make it simple but i agree its too complicated to understand. In layman terms, if any NRI is selling property in India to Resident Indian, TDS should be deducted under section 195 by Resident Indian from total consideration value. In some cases, NRI’s insist to deduct TDS only on capital gains but from definition of section 195 it clear that TDS should be deducted on total Sale Value.
Current TDS Rate under section 195 is 20.66% for Long Term Capital Gain and 33.99% for Short Term Capital Gain. In case of NRI Seller, income tax slab of NRI is not considered for TDS on short term capital gain under section 195 i.e. TDS rate is fixed at 33.99%. Whereas in case of Resident Indian Seller, Short Term Capital Gain Tax is payable at the Marginal rate i.e. as per Income Tax Slab of the individual. If NRI does not have PAN or does not produce PAN then TDS Rate will be 20% even if Assessing office issue NIL / Lower Tax Deduction Certificate under section 195 or Tax Exemption Certificate.
In my previous post, i have explained How NRI’s can lower TDS on Property Sale?. In case NRI seller produce NIL / Lower Tax Deduction Certificate under section 195 or Tax Exemption Certificate the applicable TDS rate will be as per certificate issued by the income tax department. The original certificate will be retained by the buyer. To obtain NIL / Lower Tax Deduction Certificate under section 195 or Tax Exemption Certificate is sole responsibility of NRI Seller. In many cases, i observed that buyer is doing all the running around for this certificate.
How to Deduct TDS on NRI Under Section 195?
I am listing down the steps to be followed to deduct TDS under section 195.
1. TAN (Tax Deduction Account No): Before deduction of TDS under section 195, buyer should obtain TAN under section 203A of the Income Tax Act, 1961. You can apply for TAN online by filing Form 49B. You may click on following link to apply for TAN
Besides TAN, Buyer should have his own PAN and PAN of NRI Seller to deduct TDS under section 195.
2. TDS under section 195 should be deducted at the time of making payment to NRI seller. It should be clearly mentioned in sale deed between NRI seller and buyer that TDS is deducted at specific TDS rate under section 195 and buyer will product TDS certificate to NRI Seller.
3. TDS deducted by buyer should be deposited through Form No / Challan for TDS Payment on or before 7th day of next month in which the TDS is deducted. For example if TDS is deducted during January, 2015 i.e. between 1st Jan 2015 to 31st Jan, 2015 then last date to deposit TDS without any penalty is on or before 7th Feb, 2015.
4. TDS under section 195 can be deposited by the buyer only through banks authorized by Govt of India / Income Tax Department to collect Direct Taxes. To check Bank Branches which are authorized to collect direct taxes, Please click on following link
5. After depositing TDS, the next step for buyer is to electronically file TDS return by submitting form 27Q. The TDS returns are filed quarterly i.e. for TDS deducted during the quarter (If payment is made in installment). The last date for filing the TDS Return is as follows
(a) TDS deducted during 1st Quarter (From 1st April to 30th June): July 15
(b) TDS deducted during 2nd Quarter (From 1st July to 30th Sep): Oct 15
(c) TDS deducted during 3rd Quarter (From 1st Oct to 31st Dec): Jan 15
(d) TDS deducted during 4th Quarter (From 1st Jan to 31st Mar): May 15
6. After filing TDS return, Buyer can issue TDS certificate or more specifically known as Certificate of Deduction of Tax i.e. Form 16A to NRI Seller. This certificate should be issued to NRI Seller within 15 days of due date of TDS returns for the quarter. For example for 1st quarter, the TDS Certificate should be issued on or before July 30.
Penalties for Non Compliance of Section 195
If the Buyer fail to deduct or deposit TDS under section 195 then buyer will be declared as Assessee in Default as per section 201 of Income Tax Act. All the tax dues including interest and penalty will be recovered from buyer by the income tax department. A buyer cannot claim ignorance ref to TDS provisions under section 195 while buying a property from NRI.
There are whole lot of other penalty clauses under section 272 and 271 of income tax act 1961. Some of the common penalties levied are
1. Penalty of Rs 10,000 if buyer fail to obtain or quote TAN by buyer
2. Penalty of Rs 10,000 if buyer fail to quote PAN
3. 100% penalty in case of non-deduction of TDS partially or fully
4. Penalty of Rs 100 per day for delay in filing TDS returns or failure to issue Certificate of Deduction of TDS within 15 days
Interest Penalty for delay in deduction or deposit:
Similar to TDS u/s 194IA, if buyer fail to deduct or deposit TDS under section 195 then he is liable to pay following interest penalty u/s 201(1A) of the income tax act, 1961.
(a) 1% interest for the delay of every month i.e. late deduction of tax from the date the tax was due to date the TDS is deducted
(b) 1.5% penalty for every month on account of late payment of TDS deducted to Govt. from the date TDS deducted till actual date of payment.
* Interest calculated will be simple interest
Punishment for Non Compliance
Any non-compliance is taken vary seriously by income tax department. IT department reserve right to attach properties, salary or any other receivables of the buyer to recover TDS, interest and penalties etc under section 222 and 226 of income tax act 1961.
Even if income tax department is not able to recover the dues from buyer then the buyer can be prosecuted u/s 276B by court of law under which buyer can be imprisoned max upto 7 years with minimum rigorous imprisonment of 3 months along with Fine to be decided by the court.
Hope you liked the Post. It is always advisable to pay all tax dues on time else it may land you in big trouble.
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