Jan 062023

1. Rate of TDS deduction.

According to section 195(1), any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest other than interest referred to in section 194LB or section 194LC or section 194LD or any other sum chargeable under the provisions of this Act other than salary shall, at the time of credit or at the time of payment, whichever is earlier, deduct income-tax thereon at the rates in force.

As per section 2(37A) (iii), the TDS rate under section 195 would be the rate of income tax as specified in —

(a) Finance Act of the relevant year; or

(b) Double Taxation Avoidance Agreement entered by Central Government under section 90; or

(c) Agreement notified by the Central Government under section 90A.

whichever is most beneficial shall apply.

In case of payment to non-residents TDS shall be increased by surcharge and cess if applicable.

Thus when a person resident in India makes any payment to a non-resident on the purchase of immovable property they shall deduct tax as per provision of section 195.


2. No deduction or deduction at a lower rate.

For this purpose, the payee (non-resident seller) has to make an application in Form 13 to the assessing officer.


3. Tax required to be deducted while making payment.

When a property is sold by the non-resident TDS liability would depend upon the nature of capital gain arising in such transaction. The following points need to be considered for TDS deduction on such payment.

  1. he was not aware of the fact that he was liable to deduct tax at source while making payment to a non-resident could not be accepted where it was clear from agreement to sale (ATS) that the seller was a non-resident.
  2. Where the assessee payer failed to deduct TDS from the payment made to non-residents and also failed to obtain a certificate for non-deduction of tax, he will be treated as assessee-in-default under section 201(1).
  3. Payments made by the assessee payer towards the purchase of property to two parties on behalf of the non-resident seller constitute the payments made to the said non-resident seller and hence, the tax was deductible under section 195.
  4. Payment is made for the purchase of the property being jointly owned by P, a non-resident, and S, a resident in equal shares. However total consideration is paid to S. P was admittedly, a non-resident and to the extent of Rs. 60 lakhs paid to her via S, the provisions of section 195 were attracted and the assessee ought to have deducted tax at source while making payments to the non-resident through S.


4. Payment is made through the General power of attorney (GPA) holder.

  • Assessee payer had purchased an immovable property from the NRIs, the liability to deduct tax at source under section 195 could not be done away with merely because the assessee had paid the sales consideration in India to GPA.
  • Assessee paid certain sums to one P for purchasing land. P was the power of attorney holder on behalf of five non-resident co-owners. P was a resident and an agreement was entered into with P for purchasing land by the assessee. In these circumstances, the power of attorney holder was not merely acting as an agent of the non-residents to receive money but as a person who had the right to alienate the land by the virtue of rights vested in him by the power of attorney signed by the co-owners. Provisions of section 195 were, therefore, not attracted.

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