15 March 2019
Section 195 requires deducting TDS only on the amount of income arising to the non-resident. In other words, the buyer is required to deduct TDS only on the amount of capital gain arising to the non-resident, not on the complete sale proceeds.
As per Section 195(2), when the whole amount payable to the non-resident would not be chargeable to tax in the hands of the non-resident then he may make an application to his Assessing Officer for determination of the appropriate proportion of the amount chargeable to tax. The Income Tax Officer shall compute the capital gain and provide a certificate mentioning the amount of capital gain.
The computation of capital gain cannot be done by the Seller himself and shall be done only by the Income Tax Officer. In case the certificate is not available then it is advisable to deduct the TDS on the whole amount of the sale proceeds with the highest tax rate bracket (including surcharge and cess). Actual sale consideration shall be used for calculating the amount of TDS. Stamp duty value or circle rate is not relevant for the purpose of computation of TDS. One of the main reason for collecting the whole applicable taxes on the income of non-resident in the form of TDS is the complication in the recovery of taxes due to the inherent nature of residency. If there is any short-deduction or non-deduction then the Income Tax Department will force the buyer of the property to deposit the TDS. TDS is required to be deducted on each and every payment made to non-resident irrespective of the amount of sales consideration. The high rate of TDS is designed for preventing leakage of tax. Any excess TDS deposited can be claimed as a refund by the seller by filing a return of income. Section 206AA (TDS at a higher rate if PAN not provided) is not applicable in this case as per the notification issued by Government of India.