Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(195320 Points)
Replied 23 June 2018
Ask him to declare his residential status to be declared in sale documents, in writing...... based on that you may select the TDS section.....
Amar
(Finance)
(48 Points)
Replied 23 June 2018
Thanks!
Okay... If in the Sale Documents, it says:
"XYZ, son of ABC, having Driving License No. EFGXYZ, by faith Hindu, by occupation, Service, residing at R-50, Vikas Marg, Police Station - UVW, Delhi - 110092, Delhi, India, a citizen and a resident of India having PAN: XXXXXXXXXX, hereinafter called and referred to as the "VENDOR" (which term or expression shall, unless otherwise excluded by or repugnant to the subject or context be deemed to mean and include his heirs, executors, administrators, legal representatives and assigns) of the ONE PART."
1) Can the above be done and then section 194IA will be applicable?
2) If the cheque I give to to the Vendor/Seller is deposited in NRO account, which I have no way of knowing, can I land in trouble later?
3) If the Vendor/Seller files his ITR for A.Y 2019-2020 with NRI status, which I have no way of predicting, can I land in trouble later?
4) Also can you tell if the following reasonings are correct or not:
A person would be a RESIDENT of India for income tax purposes:
If He/She is in India for 182 days or more during the financial year
OR,
If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year.
====================================================
A) So if the first 182 days of this FY are not over yet. How to ascertain residential status?
OR,
B) So if... 1 year minus 60 days = 365-60 = 305 days of this FY are not over yet. How to ascertain residential status?
====================================================
So residential status can be ascertained only after, when nearly half the FY i.e. 6 months is over &/or, when only in the last 60 days of the FY !!!
So if I transact now, the Vendor/Seller is neither a Resident nor a Non-Resident !!!
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(195320 Points)
Replied 24 June 2018
1. Yes, seller cofirmed and signed before Sub-registrar (Governmental officer)
2. No, as said above your liability gets over with all such IDs and confirmations.
3. Seller himself gets in trouble. Yes, a query may be raised and you may be called for investigation.
4. Your doubt is reasonable, and he may become NRI after the sale procedure, but that is his responsibility or liability. Just to ascertain the section applicable for TDS (you have obliged to deduct TDS, as per the section applicable at the time of purchased based on statement from the seller), you may not get into major trouble.
5. Still you can ask him to get lower deduction of Tax certificate from ITO. Or collect last 3 years ITR copies (where in residential status gets verified) and Indemnity bond for your safety.
Amar
(Finance)
(48 Points)
Replied 24 June 2018
Thank you very much for the detailed reply.
"5. Still you can ask him to get lower deduction of Tax certificate from ITO. Or collect last 3 years ITR copies (where in residential status gets verified) and Indemnity bond for your safety."
The seller is not agreeing to the above... Lower deduction of Tax Certificate or furnishing the last 3 years ITR copies or signing Indemnity Bond.
But he will sign the Sale Documents which will show him as a resident of India at the time of sale/transaction and of course the Sale Documents will be duly registered.
In this situation, can I proceed with this sale and deduct 1% TDS u/s 194IA from sale consideration agreed upon, before payment?
If yes and the sale is done by the end of June, then what will be the due date for filing 26QB and deposit of TDS before attracting any form of penalty?
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(195320 Points)
Replied 24 June 2018
He must agree for indemnity bond, otherwise ask him for no more deal !!
Ask him to get 'No emcumbrance cerificate' of the property from solicitors/advocate.... which will also confirm his status.
Amar
(Finance)
(48 Points)
Replied 24 June 2018
Oh ok.
Can you give a gist of what the Indemnity Bond should state?
The maximum total liability for the Indemnity Bond also needs to calculated. If the sale consideration is 55,00,000. Then minimum TDS liability u/s 195 is 55,00,000 x 33.99% = 16,99,500. While the maximum TDS liability shall be 16,99,500 x 2 = 33,99,000 (if 100% penalty).
Also the Indemnity bond needs to be registered in the sub-registry office?
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(195320 Points)
Replied 24 June 2018
First of all get the ' No Encumberance certificate' of the property which will clarify the present owner (along with last 30 years history) along with any encumberance or liability over the property.
The ownership will specify the status and permanent residence of the owner.
Once that is certified by his advocate, your burden gets reduced to almost nil.
Secodly indemnity bond is not for TDS liability but to indemnify purchaser in general from any/all the formalities or litigations as of the date and that may arise which the seller is liable to oblige till the date of taking possession/transfer.
Amar
(Finance)
(48 Points)
Replied 24 June 2018
My replies did not appear. I am now posting it in smaller parts without the reference links/urls.
Amar
(Finance)
(48 Points)
Replied 24 June 2018
I can't thank you enough for your continuous help. I am really grateful for your help.
I have the certified copies of all registered devolution documents/deeds with me. In the last registered sale deed, where in, he is the purchaser, he is also shown as an Indian resident with the same local address.
I have also taken a Search Report from my advocate that certifies and establishes him as the current owner residing at an Indian address.
Property documents are all clear, property is freehold and there are no encumbrances according to my advocate. Seller has originals of all documents with him and I have personally verified them.
However, I will still ask the Seller to produce the "No Encumbrance certificate".
According to my advocate, in the draft sale deed, it already says that the Purchaser is indemnified like you say in the above reply.
I will not be going into any Sale Agreement and pay an advance amount.
It will directly be a one shot transaction, where the Sale Deed will be executed & registered on the same day with the condition of possession being given first and the Seller has agreed.
So, is the Indemnity Bond still necessary in this case?
Amar
(Finance)
(48 Points)
Replied 24 June 2018
My main headache is with the TDS section applicable as the Seller *may* credit the amount to NRO account &/or, *may* become an NRI at the end of this current F.Y and file his return for the relevant A.Y with NR status!
The current Seller bought the property for: 55,80,132/-
(including registration and stamp duty)
Valuation of the property comes at: 50,01,252/-
Seller is selling the property within just 1 yr. of acquiring at: 53,00,000/-
So, the STCG is 0, since the Seller's cost of acquisition is more than the sale consideration he is receiving.
I wonder if the following would be applicable and helpful in my case, if I get into trouble, in future, for non-deduction of TDS u/s 195 &/or wrongful deduction of TDS u/s 194-IA:
GE India Technology Centre vs. CIT (Supreme Court):
TDS obligation u/s 195(1) arises only if the payment is chargeable to tax in the hands of non-resident recipient.
GE India Technology Cen. (F) Ltd. Vs. CIT (Supreme Court)- It was held that the moment a remittance is made to a non resident; obligation to deduct tax at source under section 195 of the Act does not arise. It arises only when such remittance is a sum chargeable to tax under the Income Tax Act under sections 4, 5 and 9 of the Act.
Section 195 - If payment has no element of income chargeable to tax in India then TDS not deductible
(i) S. 195(1) uses the expression “sum chargeable under the provisions of the Act”. This means that a person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax. Also s. 195(1) uses the word ‘payer’ and not the word “assessee”. The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfil the statutory obligation u/s 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default;
The Supreme Court in the case of Transmission Corpn. of A.P. Ltd., held that scheme of tax deduction at source applies to gross sums, whole of which may not be income or profits of recipient. Further, the obligation of a taxpayer who makes payments to non-residents is limited only to appropriate proportion of income chargeable under Act. Subsequently, the Supreme Court in the case of GE India Technology Cen. (P.) Ltd. held that Section 195 casts an obligation on payer to deduct tax at source from payments made to non-residents which payments are chargeable to tax. Therefore, where sum paid or credited by payer is not chargeable to tax, no obligation to deduct any tax would arise.
Central Board of Direct Taxes (CBDT) Instruction:
In view of above decisions references were made to the CBDT for clarification on whether tax is required to be deducted on the whole sum remitted or only the portion representing the sum chargeable to tax, particularly if no application has been made to determine the appropriate sum so chargeable to tax.
The CBDT has by way of Instruction No. 02/2014 (F. No. 500/33/2013-FTD-1 dated 26 February 2014), directed the AOs that in a case where the taxpayer fails to deduct tax under Section 195 of the Act, the AO shall determine the appropriate sum chargeable to tax as mentioned in Section 195(1) of the Act to ascertain the tax liability on appropriate proportion of the sum will depend on the facts and circumstances of each case taking into account nature of remittances, income component therein or any other fact relevant to determine such appropriate proportion.
Since Seller's STCG is 0, his income from sale is 0, so, sum chargeable u/s 195(1) is 0.
Based on above, if no TDS is deducted u/s 195, then, in future, I cannot be held as an "assessee-in-default".
Amar
(Finance)
(48 Points)
Replied 24 June 2018
For the life of me, I could not post the links!
URLs, links for reference:
Dhirajlal Rambhia
(SEO Sai Gr. Hosp.)
(195320 Points)
Replied 25 June 2018
As per my understanding, these cases will be helpful, whenever you are making payment to NRI.
But my stand is when you stand firm about payment to resident, no need of all these exercise.
You have to just ascertain that the seller is resident indian, when the transaction materiallized. Which he himself confirms with all his statements and documents......
One more thing as a proof, take a copy of ITR filed for AY 2018-19 (to be filed currently)
If he has filed the same as 'resident', department would not be able to question anymore......
About indemnity bond, when your advocate has already incorporated the clause in deed, no need for additional document.
Moreover, even if he becomes NRI for current year, that is based on days after your transaction materiallized.
CAclubindia
