Tax query. Taxation implications on land purchase by NRI from Indian resident

I am an NRI of Indian origin, living in the US for the past 15 years. I work as an engineer. I am 50. I bought land in India from an Indian Resident. The sale consideration is more than ₹50 lakh. Can I avoid the TDS implications in any way other than 54EC bonds?

Anushka

We understand the individual (buyer) lives overseas and we assume she would qualify as a non-resident for tax purposes under the Income-tax Act, 1961 (“the Act”). The buyer purchased land from an individual (seller) who qualifies as a tax resident under the Act. We understand that the sales consideration exceeds ₹50 lakh. We assume that the seller has not availed any lower deduction/nil deduction certificate under section 197 of the Act from the Indian tax authorities. We assume that the land purchased by the buyer is not agricultural land.

Since the consideration exceeds ₹50 lakh, as per section 194IA, any person including a non-resident, being a transferee, paying a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the transferor or at the time of payment of such sum in cash or by issue of a cheque/draft/ by any other mode, deduct tax at 1 per cent of the total sale consideration (assuming the seller provides relevant India tax ID and other details). Taxes deducted should be paid to the Indian tax authorities online through the prescribed challan cum statement in Form 26QB via any of the authorised bank branches using the e-Tax payment option available on government web portal within 30 days from the end of the month in which tax was deducted.

Assuming the seller has not shared any lower deduction/nil deduction certificate under section 197 of the Act, the buyer may not be absolved from any tax withholding and payment obligations.

The seller may avail a benefit under section 54EC of the Act where a portion of the amount taxable under capital gains is not chargeable to tax i.e. income from capital gains in lieu of the sale of the land, in his personal tax return, assuming he meets the prescribed conditions and thresholds. Further. the seller may be able to claim a tax refund in his tax return in case the taxes withheld and paid by him exceed the final tax liability. However, the seller’s ultimate tax position with respect to the sale of land is delinked from the buyer’s withholding tax obligations. Hence the buyer may not be able to avoid undertaking any tax withholding stipulations under section 194IA since those are independent and separate from the seller’s ability to avail a deduction under section 54EC of the Act.

The writer is a Partner with BDO India LLP

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