As per Income Tax Act 1961, Any person responsible for paying to Non Resident or Non Resident Indian, neither being a company nor being a foreign company, of any interest or any other sum chargeable under the provisions of Income Tax Act, 1961 (Excluding income chargeable under the head “Salaries”). Any such payment shall at the time of credit of such income to the account of payee or at the time of payment through any mode i.e. Cash, Cheque, Bankers Cheque, Demand Draft or any other mode should deduct TDS at prevailing TDS Rate under section 195.
Current TDS Rate under section 195 is 20.66% for Long Term Capital Gain and 33.99% for Short Term Capital Gain. In case of NRI Seller, income tax slab of NRI is not considered for TDS on short term capital gain under section 195 i.e. TDS rate is fixed at 33.99%. Whereas in case of Resident Indian Seller, Short Term Capital Gain Tax is payable at the Marginal rate i.e. as per Income Tax Slab of the individual. If NRI does not have PAN or does not produce PAN then TDS Rate will be 20% even if Assessing office issue NIL / Lower Tax Deduction Certificate under section 195 or Tax Exemption Certificate.
TAN (Tax Deduction Account No): Before deduction of TDS under section 195, buyer should obtain TAN under section 203A of the Income Tax Act, 1961. You can apply for TAN online by filing Form 49B. You may click on following link to apply for TAN
Besides TAN, Buyer should have his own PAN and PAN of NRI Seller to deduct TDS under section 195.
TDS under section 195 should be deducted at the time of making payment to NRI seller. It should be clearly mentioned in sale deed between NRI seller and buyer that TDS is deducted at specific TDS rate under section 195 and buyer will product TDS certificate to NRI Seller.
If the Buyer fail to deduct or deposit TDS under section 195 then buyer will be declared as Assessee in Default as per section 201 of Income Tax Act. All the tax dues including interest and penalty will be recovered from buyer by the income tax department. A buyer cannot claim ignorance ref to TDS provisions under section 195 while buying a property from NRI.
Any non-compliance is taken vary seriously by income tax department. IT department reserve right to attach properties, salary or any other receivables of the buyer to recover TDS, interest and penalties etc under section 222 and 226 of income tax act 1961.
Even if income tax department is not able to recover the dues from buyer then the buyer can be prosecuted u/s 276B by court of law under which buyer can be imprisoned max upto 7 years with minimum rigorous imprisonment of 3 months along with Fine to be decided by the court.