TDS and Compliance for NRI

TDS and Compliance for NRI

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 .

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.

TDS Rate

Current TDS Rate under section 195 is 20.66% for Long Term Capital Gain and 33.99% for Short Term Capital Gain.If NRI does not have PAN or does not produce PAN then TDS Rate will be 20%. 

TDS on NRI 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.
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 produce 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.

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. 

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 17
(b) TDS deducted during 2nd Quarter (From 1st July to 30th Sep): Oct 17
(c) TDS deducted during 3rd Quarter (From 1st Oct to 31st Dec): Jan 17
(d) TDS deducted during 4th Quarter (From 1st Jan to 31st Mar): May 17

 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.

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