Plot buyer may prefer to deduct a higher TDS
If the 'seller' qualifies as a 'non-resident' in India, the buyer is required to deduct TDS at a specified rate on taxable capital gains on the sale of immovable property
My friend is a non-resident Indian (NRI). He wants to sell a plot in India. A long-term capital gain (LTCG) tax of 20% will be applicable on the capital gain since the plot was bought in 2015. If he transfers the registration to his wife—who is an Indian resident—and then sells the property, will the tax deducted at source (TDS) reduce to 1%?
—Name withheld on request
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Under the Indian income tax law, if the “seller" of an immovable property (other than agricultural land) qualifies as a “resident" of India during the relevant financial year and the sale consideration exceeds ₹50 lakh, the buyer is required to deduct TDS at 1%.
If the “seller" qualifies as a “non-resident" in India, the buyer is required to deduct TDS at a specified rate on taxable capital gains on the sale of immovable property. The specified rate is 20% (plus applicable surcharge and health and education cess) in case of long-term capital gains and 30% (plus applicable surcharge and health and education cess) in case of short-term capital gains. Alternatively, the buyer or seller may approach the income tax officer to apply for lower or nil TDS certificate.
The NRI seller may transfer the property in the name of his resident wife by way of gift. However, there will be stamp duty, registration and documentation cost on such a transfer.
Further, due to income clubbing provisions in the income tax law, the capital gains income will be clubbed in the hands of the NRI seller, who will be liable to pay income tax in India on LTCG.
The clubbing does not apply only if the transfer is for adequate consideration or in connection with an agreement to live apart. Considering the clubbing provision, the buyer may prefer to deduct TDS at a higher rate in the name of the NRI seller only.
Sonu Iyer is tax partner and people advisory services leader, EY India.
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