When purchasing an immovable property, usually a residential flat, from an NRI, in the absence of any clear rules or guidelines or a Circular / Instruction from CBDT, the buyer faces an unenviable situation: How much TDS to be deducted from the Purchase price payable to the NRI? Whether to deduct TDS @ 20% plus applicable Cess and Surcharge from the Gross Purchase Price, which is usually not acceptable to the Seller, many times resulting in cancellation of the deal? Whether to deduct TDS amount from the Capital Gains taxable in the hands of the NRI? If yes, who should calculate and certify the amount of Capital Gains Tax deductible ? Whether a certificate issued by a Chartered Accountant would be acceptable to the Authorities? Whether it is okay to take into account deduction available to the seller u/s 54 or u/s 54EC of the Act while calculating the amount of Capital Gains Tax liability?
In this connection, it is worth recalling that the Supreme Court as well as various High Courts has held, time and again, that TDS u/s 195 is deductible only from the “Sum Chargeable under the provisions of this Act.”
In view of the uncertainties involved and lack of authoritative guidance from the Tax Authorities, the buyers usually insist upon deducting the tax from the gross purchase price payable or require the seller to obtain and furnish a certificate u/s 197, which is usually a very time consuming and costly process and which is not easily manageable for a Non Resident Indian who has either no helpful relatives in India or has parents who are very Senior Citizens. Thus, obtaining a Certificate u/s 197 of the Act is not a very convenient and hassle free way of doing things for an NRI, particularly when the rules for computing Capital Gains arising from transfer of an immovable property such as a Residential Flat are fairly clear and well settled under the Act and the same can be easily computed and certified by a Chartered Accountant.
In view of the above, I would request the CBDT to issue necessary clarifications and authorise Chartered Accountants to issue the requisite Certificate in the Form to be prescribed by the CBDT.
Alternatively, in case, payment is made by a Buyer to an NRI in INR, provisions of section 194-IA which are presently applicable to a resident transferor, may be made applicable to a Non Resident Transferor with suitable modifications. In such an event, the NRI will have to comply with the procedure laid down u/s 195(6) while remitting the funds outside India. It will greatly facilitate real estate transactions by NRIs and go a long way in realizing the Government’s objective of Ease of Doing Business / Investment in India.
Regards,
Tarun Singhal.
