Tds on property purchase from nri
This query is : Resolved
12 October 2012
Dear All,
Can anyone give their opinion on the following isssu.
Fact:
MR.A(individual) resident of INDIA wants to purchase a house property for Rs.25 lac situated in pune, india from MR.X(Individual) a non resident.
Mr.X is the person of indian origin had purchased the said house for Rs.10 lac in 2005 through his authorise representative MR.Y to whom Mr.X has given power of attorney.
Queries:
A) Whether Mr.A has to deduct TDS U/s 195 from payment made to Mr.X? If yes on which amount Rs.25 Lac or on capital gain? and at what rate?
B) If Mr.A makes the payment to Mr.P to whom Mr.X has given power of attorney to execuate the sale transaction-
Whether Mr.A has to deduct TDS U/s 195 from payment made to Mr.P? If yes on which amount Rs.25 Lac or on capital gain? and at what rate?
Can anyone give their opinion on the following isssu.
Fact:
MR.A(individual) resident of INDIA wants to purchase a house property for Rs.25 lac situated in pune, india from MR.X(Individual) a non resident.
Mr.X is the person of indian origin had purchased the said house for Rs.10 lac in 2005 through his authorise representative MR.Y to whom Mr.X has given power of attorney.
Queries:
A) Whether Mr.A has to deduct TDS U/s 195 from payment made to Mr.X? If yes on which amount Rs.25 Lac or on capital gain? and at what rate?
B) If Mr.A makes the payment to Mr.P to whom Mr.X has given power of attorney to execuate the sale transaction-
Whether Mr.A has to deduct TDS U/s 195 from payment made to Mr.P? If yes on which amount Rs.25 Lac or on capital gain? and at what rate?
14 October 2012
TAX WILL B DEDUCTED U/S 195 ON THE AMT OF PURCHASE PRICE ELSE U WILL HAVE TO MAKE APPLICATION TO AO UNDER SECTION 195(2) FOR ORDER AS TO ON WHICH AMT TAX SHALL BE DEDUCTED
CA MANOJ GUPTA
JODHUR
09828510543
CA MANOJ GUPTA
JODHUR
09828510543
27 July 2025
This is a **taxation issue involving the purchase of immovable property in India from a Non-Resident Indian (NRI)**. The applicable law is **Section 195 of the Income Tax Act, 1961**, which deals with **TDS on payments to non-residents**.
Let’s go through your queries one by one:
---
## ✅ **Facts Summary:**
* **Buyer:** Mr. A – Resident of India
* **Seller:** Mr. X – Non-Resident Indian (NRI), Person of Indian Origin (PIO)
* **Sale Consideration:** ₹25 Lakhs
* **Original Cost to Seller (2005):** ₹10 Lakhs
* **Power of Attorney:** Mr. P (executing transaction on behalf of Mr. X)
---
## ❓ **Query A: Is Mr. A required to deduct TDS u/s 195?**
### ✅ **Yes, Mr. A must deduct TDS under Section 195.**
* **Section 195** mandates TDS on **any sum (other than salary)** paid to a **non-resident**, which is **chargeable to tax in India**.
* Since the property is in India and capital gains (if any) are taxable in India, **TDS is applicable**.
---
### 🔍 **On what amount is TDS deducted: ₹25 lakhs or Capital Gain?**
* TDS should be deducted **on the *capital gains* amount**, not the entire sale consideration.
* However, since **Mr. A may not know the exact capital gains**, as a precaution, **tax authorities often require TDS on the full sale consideration unless a lower deduction certificate is obtained.**
---
### ✅ **Options Available:**
* **Option 1 (without lower deduction certificate):**
Deduct TDS **on ₹25 lakhs** at the applicable rate.
* **Option 2 (with certificate u/s 197):**
Mr. X can **apply to the Assessing Officer (AO)** for a **lower/NIL deduction certificate**, based on his **actual capital gains**.
If such a certificate is provided, Mr. A can deduct TDS on **the capital gains only**, or at a **lower rate**.
---
### 📌 **TDS Rate (as per current law for NRI - long-term capital gain)**
Assuming the property was held for more than 2 years (bought in 2005, sold in 2012), it qualifies as **long-term capital asset**:
* **TDS Rate:**
* **20%** on **capital gains**
* Plus **surcharge** (if applicable) and **cess (4%)**
So, **effective TDS** could be around **20.8% to 23.92%**, depending on income slab of the seller.
---
## ❓ **Query B: If payment is made to Mr. P (POA holder), is TDS required?**
### ✅ **Yes. TDS still applies under Section 195.**
* Mr. P is **only an agent / POA holder**. The beneficial owner is **Mr. X (NRI)**.
* TDS must be deducted **even if the amount is paid to Mr. P**, since it is **payment on behalf of Mr. X**.
* The **recipient for tax purposes is still Mr. X**.
So, TDS has to be deducted **exactly the same way** as if the payment was being made to Mr. X directly.
---
## 🚩 **Consequences of Non-Compliance:**
* If Mr. A does not deduct TDS properly:
* He can be treated as an **"assessee in default"**
* Liable to pay **tax, interest, penalty**
---
## ✅ **Summary Table:**
| Query | TDS Applicability | TDS On | Rate |
| ----- | -------------------------------- | ------------------------------------------------------------------- | ------------------- |
| A | Yes (u/s 195) | Capital Gains (or Full amount if gains not known or no certificate) | \~20.8% to \~23.92% |
| B | Yes (even if paid to POA holder) | Same as above | Same as above |
---
### 🔖 **Recommendation:**
Mr. A should:
1. **Request Mr. X to obtain a lower deduction certificate** (Form 13 under section 197).
2. Deduct TDS **before making any payment** (even token amounts).
3. File **Form 15CA/15CB** (required for remittance/payment to NR).
4. Keep documentation (sale deed, POA, certificate, TDS challan) for compliance.
Let me know if you want help calculating the **actual capital gains** or estimating the **indexed cost** for Mr. X.
Let’s go through your queries one by one:
---
## ✅ **Facts Summary:**
* **Buyer:** Mr. A – Resident of India
* **Seller:** Mr. X – Non-Resident Indian (NRI), Person of Indian Origin (PIO)
* **Sale Consideration:** ₹25 Lakhs
* **Original Cost to Seller (2005):** ₹10 Lakhs
* **Power of Attorney:** Mr. P (executing transaction on behalf of Mr. X)
---
## ❓ **Query A: Is Mr. A required to deduct TDS u/s 195?**
### ✅ **Yes, Mr. A must deduct TDS under Section 195.**
* **Section 195** mandates TDS on **any sum (other than salary)** paid to a **non-resident**, which is **chargeable to tax in India**.
* Since the property is in India and capital gains (if any) are taxable in India, **TDS is applicable**.
---
### 🔍 **On what amount is TDS deducted: ₹25 lakhs or Capital Gain?**
* TDS should be deducted **on the *capital gains* amount**, not the entire sale consideration.
* However, since **Mr. A may not know the exact capital gains**, as a precaution, **tax authorities often require TDS on the full sale consideration unless a lower deduction certificate is obtained.**
---
### ✅ **Options Available:**
* **Option 1 (without lower deduction certificate):**
Deduct TDS **on ₹25 lakhs** at the applicable rate.
* **Option 2 (with certificate u/s 197):**
Mr. X can **apply to the Assessing Officer (AO)** for a **lower/NIL deduction certificate**, based on his **actual capital gains**.
If such a certificate is provided, Mr. A can deduct TDS on **the capital gains only**, or at a **lower rate**.
---
### 📌 **TDS Rate (as per current law for NRI - long-term capital gain)**
Assuming the property was held for more than 2 years (bought in 2005, sold in 2012), it qualifies as **long-term capital asset**:
* **TDS Rate:**
* **20%** on **capital gains**
* Plus **surcharge** (if applicable) and **cess (4%)**
So, **effective TDS** could be around **20.8% to 23.92%**, depending on income slab of the seller.
---
## ❓ **Query B: If payment is made to Mr. P (POA holder), is TDS required?**
### ✅ **Yes. TDS still applies under Section 195.**
* Mr. P is **only an agent / POA holder**. The beneficial owner is **Mr. X (NRI)**.
* TDS must be deducted **even if the amount is paid to Mr. P**, since it is **payment on behalf of Mr. X**.
* The **recipient for tax purposes is still Mr. X**.
So, TDS has to be deducted **exactly the same way** as if the payment was being made to Mr. X directly.
---
## 🚩 **Consequences of Non-Compliance:**
* If Mr. A does not deduct TDS properly:
* He can be treated as an **"assessee in default"**
* Liable to pay **tax, interest, penalty**
---
## ✅ **Summary Table:**
| Query | TDS Applicability | TDS On | Rate |
| ----- | -------------------------------- | ------------------------------------------------------------------- | ------------------- |
| A | Yes (u/s 195) | Capital Gains (or Full amount if gains not known or no certificate) | \~20.8% to \~23.92% |
| B | Yes (even if paid to POA holder) | Same as above | Same as above |
---
### 🔖 **Recommendation:**
Mr. A should:
1. **Request Mr. X to obtain a lower deduction certificate** (Form 13 under section 197).
2. Deduct TDS **before making any payment** (even token amounts).
3. File **Form 15CA/15CB** (required for remittance/payment to NR).
4. Keep documentation (sale deed, POA, certificate, TDS challan) for compliance.
Let me know if you want help calculating the **actual capital gains** or estimating the **indexed cost** for Mr. X.
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