Abhishek Gupta 02 February 2023

Tax implications and process when buying property from nri

I am buying an under construction apartment in Bangalore from the landowner's share. The title and other documents of the apartment are clear. There are 4 owners of that apartment - Mother, Son1, Son2, Daughter (who is a NRI). Mother has the power of attorney from Son1, Son2, NRI Daughter for the purpose of sale of apartment in the society built on their land, signed and registered at sub-registrar office.

I have already paid 10% of property sale consideration to the Mother's bank account for signing the sale agreement.

Now I got to know from a bank employee that I am supposed to pay the amount individually to each of the owner's account proportionate to their ownership share (so 2.5% each to the 4 individuals account instead of 10% to the account of POA holder) and while paying the NRI Daughter's share, I am supposed to withhold 22.88% of that payment as TDS (and pay it to Income Tax department). The same process would apply to future payment by me as well as the loan amount paid by the bank.

In case I don't deduct the 22.88% TDS from the NRI Daughter's share (pay her 100% of her share's sale consideration), the income tax department may ask me at any point in future to pay that TDS from my own pocket and also levy a 12% penalty from me for failing to deduct the TDS.

Is my understanding correct or am I missing something? Did I make a mistake paying 10% to the POA holder (Mother)? Should I get that refunded and make payment of 2.5% to each individual, deducting 22.8% from the NRI Daughter's share?

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3 Replies

Dr. MPS RAMANI Ph.D.[Tech.] (Scientist/Engineer) 02 February 2023

Section 194 IA of the Income-tax Act says TDS is to be made from payment to a resident by way of consideration for transfer of any immovable property (other than agricultural land), where such consideration exceeds Rs.50 lakhs. TDS not made from the advance paid can be adjusted from later payments. If you are making the payments separately to each person tax will have to be deducted from each payment. If you draw a single cheque for all payments together then deduction can be made from such single payment. But the payees may claim separate payments so that they can claim tax credits in favour of each of them. You also will have to register yourself with the income-tax department as a tax deductor.

Abhishek Gupta 02 February 2023

Am I supposed to deduct 22.88% TDS from the NRI Daughter's share?

Dr. MPS RAMANI Ph.D.[Tech.] (Scientist/Engineer) 03 February 2023

Yes as the law says. You have also to register with the Income Tax Department and obtain a TAN number. I strongly suggest that you take advice from a chartered accountant. Nowadays CAs are available for online consultancy also.