Tips for buying a property from an NRI
Purchasing a property in India from a non-resident Indian(NRI) is a bit tricky in comparison to buying from a person residing in India. It is so because of the legal complexities involved in the process. If you do not want the authorities to knock your doors after the purchase of property, keep these tips in mind before you finalize the deal.
Property purchase can be a complicated affair because of the multiple rules and regulations involved in the process. The requirements for buying a property from a developer differ from the conditions associated with purchasing a home in the secondary market. Further, in the resale segment, buying a home from a person living in India may be slightly less complicated as buying from a Non-Resident Indian(NRI). Hence, if you are planning to buy a home which is owned by an NRI, here are a few tips which may help you sail through the transaction smoothly-
Who is liable to pay the tax?
“The process to buy a home from an NRI is almost the same, however, the difference arises in the case of taxation. The tax applicable on sale and purchase of immovable property from an NRI is 20 percent against one percent when buying a property from an Indian citizen, as per the section 195 of the income Tax Act(ITA)” . Moreover, if the property value is less than Rs 50 lakh and the seller resides in India, no tax is applicable. While in case of an NRI, TDS is applicable at the rate of 20.80 percent for properties costing(less than Rs 50 lakh), 22.88 percent for properties priced between Rs 50lakh and Rs 1 corer, and 23.92 percent for properties costing more than Rs 1 corer.
It has been seen that NRIs often insist on calculating the tax on the value of the property, but it is clearly mentioned in section 195 that the TDS is calculated on the sale value of the property. If the NRI is a tax defaulter, then the department will hold the new owner responsible for clearing the past tax dues along with 12 percent interest. The new owner may also be penalized for the same.
So, to avoid legal troubles later, one must get the tax calculated from a registered tax official and pay dues on their own to avoid any discrepancy in figures.
Get yourself a TAN
Irrespective of the fact that you are buying a property from a resident or a non-resident Indian, one must possess a Tax Deduction and Collection Account Number(TAN), as stated in section 195 of ITA. In case you initiate the deal and deduct the TDS without a TAN; it is possible that the Income Tax department may impose a hefty penalty on you. Also, it is to be noted that if the property is being purchased jointly, all the Co-buyers must have TAN.
Make payment in NRO/NRE/FCNR accounts
In order to avert legal complications, NRIS often ask native residents to make payments in their indian accounts saying that it will be easier for them. But it is advisable to step down from such negotiation and ask them to provide their Non- Resident External(NRE) or a Non-Resident Ordinary(NRO) or Foreign Currency Non- Repatriable (FCNR) account details. This will save you from any legal repercussions. One must also mention the provided account details in the sale deed.
Other notable points:
- In order to complete a property transaction, the seller must have a Permanent Account Number(PAN). So, before initiating a deal, always ask for the seller’s PAN.
- Always ask the seller to be present in India to complete the deal. In case, the seller is unable to be present at the time of deal closure in front of the registrar, Check if they have given Power Of Attorney(POA) to someone for carrying out the deal.
- Check whether there is a single owner or multiple owners of the property. If it is owned jointly, then the payment is made as per their share in the property. Paying a single owner may attract litigation in future.
Penalties for non-compliance of section 195
If a buyer fails to deduct TDS under section 195, he will be declared as Assesse in default and will be booked under section 201 of the Income Tax Act. Here’s a list of some common penalties that are listed below:
- If a buyer fails to provide his/her TAN or PAN a penalty of Rs 10,000 is levied
- A penalty of 100 percent will be imposed if a buyer fails to deduct TDS partially or fully
- Rs.100 per day penalty is imposed in case of delay in filling TDS return or submission of certification of Deduction within 15 days of the transaction.