Purchasing a house is a significant financial decision, requiring careful attention to tax and legal compliance. Whether the seller is a resident or a Non-Resident Indian (NRI), it is crucial to be aware of key regulations to ensure a smooth transaction. Here is a comprehensive checklist to follow while buying property in India.
- Conduct Due Diligence Before Buying
Buying a property involves more than just paying the seller; it requires a thorough legal and financial background check:
- Verify the title and ensure the property is free from disputes.
- Check for legal heirs and obtain their consent if it is an inherited property.
- Examine ownership documents, share certificates, possession letters, and property tax receipts.
- Assess the neighborhood for safety and suitability.
- If purchasing an under-construction property, verify project timelines, penalties for delays, and the builder’s credibility.
- Make Payments Through Bank Transfers
- Avoid cash transactions; all payments should be made via bank transfers.
- Cash dealings can lead to income tax scrutiny and legal complications.
- Ensure a Proper Sale Deed
- A legally drafted Sale Deed is essential.
- If the seller is an NRI, this must be explicitly mentioned for proper TDS compliance.
- The deed should include details such as sale consideration, seller’s information, property description, and tax deduction specifics.
- Seller’s Availability & Power of Attorney (PoA)
- The seller must be physically present at the registrar’s office for the execution of the Sale Deed.
- If an NRI seller is unavailable, they must authorize someone via a notarized, apostilled, or adjudicated PoA as per Indian laws.
- Multiple Sellers – Proportional TDS Deduction
- If there are multiple sellers, TDS should be deducted proportionately based on their ownership share.
- Some sellers may request TDS deduction for only one seller, which is incorrect.
- If the sale deed does not specify ownership percentages, it is assumed to be equal among all sellers.
- Multiple Buyers – Individual TDS Obligations
- If there are multiple buyers, each is responsible for TDS deduction based on their ownership share.
- Practically, one buyer often deducts TDS for all, but this is incorrect – each buyer must comply individually.
- Considerations for Home Loans
- If a home loan is being availed, ensure the bank disburses the amount directly to the seller.
- Some banks require prior tax compliance checks before loan disbursal, so coordinate in advance.
- Review loan eligibility, interest rates, processing fees, and prepayment penalties before finalizing.
- Lower TDS Certificate for NRI Sellers
- If an NRI seller expects lower capital gains tax, they can apply for a Lower TDS Deduction Certificate under Section 195.
- Buyers should ensure the seller has this certificate before making payments; otherwise, full TDS will apply.
- The application process takes time, so buyers should assist sellers to avoid transaction delays.
- Buyer’s Responsibility for TDS Deduction
- The buyer is responsible for deducting TDS, not the seller.
- Failure to deduct TDS correctly can result in tax notices to the buyer.
- TDS Deduction Rules:
- Resident Seller (Section 194IA): 1% TDS if the property value exceeds ₹50 lakh, including token money.
- NRI Seller (Section 195):
- On long-term capital assets (property held for more than two years): 12.5% on sale consideration (without indexation, effective July 23, 2024).
- On short-term capital assets: 30% TDS rate.
- Surcharge and cess apply additionally.
- If the seller has a Lower TDS Certificate, TDS must be deducted at the approved rate instead of the standard rate.
- TAN Requirement for NRI Sellers
- If the seller is an NRI, the buyer must obtain a TAN (Tax Deduction and Collection Account Number).
- TAN is not required for resident sellers under Section 194IA.
- It typically takes about a week to obtain a TAN from NSDL Pune via email.
- Depositing TDS and Filing Returns
- After deducting TDS, the buyer must deposit it with the government within the due date.
- TDS Return Filing Requirements:
- Form 26QB for resident sellers.
- Form 27Q for NRI sellers.
- A TDS certificate (Form 16A) must be issued to the seller.
- When dealing with an NRI seller, the buyer should provide the TDS challan immediately after remitting the TDS to the Income Tax Department, while the TDS certificate will be available after the end of the quarter.
Final Thoughts
Buying a house is a major investment, and ensuring compliance with tax and legal regulations is crucial for a hassle-free experience. Seeking professional advice from a Chartered Accountant and a legal expert is highly recommended to avoid potential complications and ensure smooth execution of the transaction.
If you have any further questions or need assistance, feel free to reach out to us at admin@ushmaassociates.com or info@nricaservices.com, or contact us via call/WhatsApp at +91 9910075924.
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Disclaimer: Aim of this article is to give basic knowledge about the topic to people who are not in touch with Indian tax norms. When anybody is dealing with these kinds of cases practically, he shall consider all relevant provisions of all applicable Laws like FEMA/Income Tax/RBI /Companies Act etc.
