Contribution towards an EPF account provides a benefit to individuals by way of a deduction under Section 80 C. Let’s discuss what would be the income tax or TDS implications of EPF withdrawal. Interestingly, EPF withdrawal is taxable under certain circumstances and exempt under certain circumstances. If…

In July 2018, Shayna sold a property in Mumbai. Shayna is 26 years old and works as a freelancer consultant for Graphics Design. She did not know about payment of TDS on sale of Property at the time of sale. Also, even the buyer was unaware about the income tax provisions of TDS on sale of Property.

Let’s understand about the tax liability and payment of TDS when selling the Property. To make things little easier to understand, I have created these slides which explains all the provisions in detail:

Other Thing that you should know:

What is Form 26QB?

Form 26QB is the for that has to be filled by the buyer or his CA. It is basically a a return cum challan which has to be filed within 30 days of the next month (of the sale of property). If the buyer fails to deduct then he will get a notice for non-filing of Form 26QB

What exactly is Form 16B? 

Form 16B is a TDS certificate for TDS deducted on a successful sale of property or home. As soon as the buyer makes the payoff of TDS on behalf of the seller, a TDS certification gets generated after a short time of making the payment to the government. The purchaser can then obtain this certificate often known as Form 16B and provide to the seller as a testament to TDS submission. 

What are the Modes of Payment?

The payment of TDS can be done any of the following ways: 

• On the web by means of the e-tax payment option.
• On the web by means of net banking account of the buyer.
• Physically going to any authorized bank branches 

Responsibilities of an individual Deducting TDS on Sale of Property or home 

There are specific fundamental duties explained below of person who is liable to deduct tax at source: 

• To get Tax Deduction Account Number also known as TAN and quote the same in all the documents pertaining to TDS.
• To deduct the tax at source at the appropriate rate.
• To pay off the tax deducted by him or her at the source to the credit of the Government by filing Form 26QB on or before the due date.
• To file the regular TDS returns.
• To download and issue the TDS certificate or Form 16B to the payee in respect of tax deducted by him by the due date stipulated by law in this respect. 
  
  

Is TAN Mandatory for a Person Accountable for Deducting TDS? 

Yes, everybody responsible for TDS is required to obtain TAN. Tax deduction and Collection Account Number is a ten-digit alpha-numeric unique identification number allotted to the deductor and must be quoted in all communication of the deductor thereby. 
For those who don’t have TAN, the payment of tds is to be filed with the help of Form 26QB and then issuing a certificate for tax deduction under Form 16B. Form 26QB is available in the e-payment section of Tax Information Network (TIN ) of the Income Tax Department .

Frequently Asked Questions

What are the consequences a deductor would face if he fails to deduct TDS or after deducting the same fails to deposit it to the Government’s account?

A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit it to the credit of Central Government’s account:

Levy of interest: As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assesse -in-default and liable to pay simple interest as follows:

at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

at 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.

Levy of penalty: Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C.

What if the payer does not deduct tax at source, will the payee face any adverse consequences by means of action taken by the Income-tax Department?

It is the duty and responsibility of the payer to deduct tax at source. If the payer fails to deduct tax at source, then the payee will not have to face any adverse consequences. However, in such a case, the payee will have to discharge his tax liability. Thus, failure of the payer to deduct tax at source will not relieve the payee from payment of tax on his income.

Thanks for Reading

This article is focussed on NRI Taxation - House Property. There is a good quantity of confusion concerning tax implication for NRIs that wish to sell any house property that they will have in India. This article explores what proportion tax is due and TDS deductible just in case of NRIs wish to sell their property. 

NRIs selling house property got to pay tax on the Capital Gains. The tax that's due on the profit depends on whether or not it’s a Short-Term or long-term capital gains.

When a house property is sold, after a period of 2 years (Reduced from 3 years to 2 years in Budget 2017) from the date it was owned – there is a long-term capital gain. In case it held for 2 years or less – there is a short-term capital gain.

Tax implications for NRIs also are applicable in the case of inheritance. Keep in mind the date of purchase of the initial owner to decide whether or not it’s a long-term or short-term financial gain. In such a case the value of the property shall be the value to the previous owner.

How much tax is payable?

Long-term capital gains are taxed at 20% and Short-Term gains shall be taxed at the applicable tax rates for the NRI.

TDS Deductible

When a NRI sells property, the buyer is liable to deduct TDS @ 20%. And in case the property has been sold before two years (reduced from the date of purchase) a TDS of 30% shall be applicable.

How to save tax on capital gains?

NRIs are allowed to claim exemptions underneath section 54 and Section 54EC on long-term capital gains from sale of house property in India.

Exemption underneath Section 54

It is obtainable once there's a long-term financial gain on sale of a house property of the NRI. The house property can be self-occupied or let-out. Please note – you don’t have to invest the complete sale receipt, only the amount of capital gains. Of course, your purchase price of the new property could be more than the amount of capital gains. However, your exemption shall be restricted to the overall financial gain on sale. Also, you'll be able to purchase this property either one year before the sale or two years once the sale of your property. You're additionally allowed to invest the gains in under-construction property, however construction should be completed inside three years from the date of sale.

From 2014-15, it's been held that ONLY one house property can be purchased or constructed from the capital gains to get this exemption. Additionally, beginning assessment year 2015-16 (or Financial Year 2014-15) it's obligatory that this new house property should be located in Republic of India. The exemption underneath section 54 shall not be obtainable for properties bought or made outside India. (Do keep in mind that this exemption is taken back if you sell this new property inside three years from the date of its purchase).

If you've NOT been able to invest your capital gains till the date of filing of return (usually 31^st July – it got extended by one month this year) of the yr within which you've sold-out your property, you're allowed to deposit your gains in PSU bank or other banks as per the Capital Gains Account scheme, 1988. And in your return claim this as an exemption from your capital gains, then you don’t have to pay tax on it.

Exemption underneath section 54F

It is available when there's a long-term capital gain on the sale of any capital asset other than a residential house. To get this exemption, the NRI needs to purchase one house property, within one year before the date of transfer or two years after the date of transfer. In case of construction of property, it should be within three years from the date of transfer of the asset. This new house property should be located in Republic of India and should not be sold-out within three years of its purchase or construction.

Also, the NRI should not own more than one house property (besides the new house) and nor should the NRI purchase within a period of 2 years or construct within a period of 3 years any other residential house. Here the ENTIRE SALE receipts are required to be invested. If the entire sale receipts are invested, then the capital gains are fully exempt otherwise the exemption is allowed proportionately.

Exemption is additionally obtainable underneath Section 54 EC

You can also save the taxes on your long-term capital gains by investing them in certain bonds. Bonds issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC) are specified for this purpose. These bonds are redeemable after three years and should not be sold-out before the lapse of three years from the date of sale of the house property. Note that you just cannot claim this investment underneath any other deduction. You're allowed a period of six months to invest in these bonds – (and make sure that you invest in them before the IT Return filing date). From 2015, you are allowed to invest a maximum of Rs fifty lakhs only in a financial year in these bonds.

The NRI should make these investments and show relevant proofs to the Buyer of property – to be certain that he does not deduct TDS on the capital gains. The NRI can also claim excess TDS paid at the time of return filing and claim a refund.

Thank You for reading.

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