I am purchasing a house from joint owners. One owner is an NRI, and the second is an Indian resident. The sale consideration is Rs58 lakh. I need to pay 50% to each seller. I know I can deduct 1% TDS on payments made to the resident Indian, but I am confused about the tax to be deducted on payments made to the non-resident joint owner. Can you please guide me?
The provision of tax deduction@ 1% under Section 194-IA for purchasing a property is applicable when the seller is a resident, and the property’s value exceeds ₹50 lakh. In your case, as far as the resident seller is concerned, you can discharge your liability by deducting tax @ 1% on 29 lakhs. As far as the non-resident co-owner is concerned, you must comply with provisions of Section 195 of the Income Tax Act, which requires any person paying any money to a non-resident to deduct tax at source at the rates in force.
The tax rate for long-term capital gains is 20% on the indexed profits. If you can get the relevant documents for working out the capital gains based on the cost of purchase and date of purchase, you need to deduct tax at 20% on such taxable capital gains in case the property was held for more than two years by the seller. If the holding period is less than two years, you must deduct tax @ 30%. If the seller is unwilling to share the documents, you must deduct tax for the amount paid at these rates. Please note that you must obtain a tax to deduct tax from payment being made to a non-resident. Deduction Account Number (TAN)is not required if the seller is a resident.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and on @jainbalwant on Twitter.
