Comprehensive Guide for Home Buyers: TDS & Legal Compliance When Purchasing Property in India

Acquiring a property is a significant financial commitment, requiring careful adherence to tax and legal regulations. Whether the seller is a resident or a Non-Resident Indian (NRI), understanding compliance requirements is essential to ensure a seamless transaction. Below is a detailed checklist to guide buyers through the process.

1. Conduct Thorough Due Diligence

A property purchase involves more than just making a payment; legal and financial verifications are crucial:

• Confirm that the property has a clear title and is free from disputes.
• Check for legal heirs’ consent if the property is inherited.
• Review ownership documents, share certificates, possession letters, and property tax receipts.
• Evaluate the neighborhood for safety and suitability.
• For under-construction properties, verify project timelines, delay penalties, and the builder’s reputation.

2. Opt for Bank Transfers for Payments

• Cash transactions should be avoided; all payments must be routed through bank transfers.
• Cash dealings can attract income tax scrutiny and lead to legal complications.

3. Execute a Legally Valid Sale Deed

• The Sale Deed must be properly drafted and legally executed.
• If the seller is an NRI, this should be clearly mentioned to ensure accurate TDS compliance.
• The deed must detail the sale consideration, seller’s details, property description, and tax deduction particulars.

4. Seller’s Presence & Power of Attorney (PoA)

• The seller must be present at the registrar’s office for the Sale Deed execution.
• If an NRI seller is unavailable, they must authorize a representative through a notarized, apostilled, or adjudicated PoA as per Indian regulations.

5. TDS Deduction for Multiple Sellers

• If the property has multiple sellers, TDS must be deducted proportionately based on each seller’s ownership share.
• Deducting TDS for only one seller, as sometimes requested, is incorrect.
• In the absence of an ownership percentage in the Sale Deed, it is assumed to be equal among all sellers.

6. TDS Deduction for Multiple Buyers

• When there are multiple buyers, each is responsible for deducting TDS in proportion to their ownership.
• Often, one buyer deducts TDS for all, which is incorrect – all buyers must fulfill their respective obligations.

7. Considerations for Home Loans

• If a home loan is being availed, ensure the bank disburses the amount directly to the seller.
• Some banks mandate prior tax compliance checks before loan disbursal, requiring early coordination.
• Review loan eligibility, interest rates, processing fees, and prepayment charges before finalizing.

8. Lower TDS Certificate for NRI Sellers

• An NRI seller expecting lower capital gains tax can apply for a Lower TDS Deduction Certificate under Section 195.
• Buyers must ensure this certificate is obtained before making payments; otherwise, full TDS will be applicable.
• The process takes time, so proactive coordination with the seller can help prevent transaction delays.

9. Buyer’s Responsibility for TDS Deduction

• The onus of deducting TDS lies with the buyer, not the seller.
• Incorrect TDS deductions can lead to tax notices for the buyer.
• Applicable TDS Rates:
• Resident Seller (Section 194IA): 1% TDS if the property value exceeds ₹50 lakh, including advance payments.
• NRI Seller (Section 195):
• For long-term capital assets (property held for more than two years): 12.5% on sale consideration (without indexation, effective July 23, 2024).
• For short-term capital assets: 30% TDS.
• Additional surcharge and cess may apply.
• If a Lower TDS Certificate is available, deduction must be made at the approved rate instead of the standard rate.

10. TAN Requirement for Buyers Dealing with NRI Sellers

• When purchasing from an NRI, the buyer must obtain a TAN (Tax Deduction and Collection Account Number).
• A TAN is not required for transactions involving resident sellers under Section 194IA.
• The TAN application process typically takes about a week via NSDL Pune.

11. Depositing TDS and Filing Returns

• TDS deducted must be deposited with the government within the prescribed timeline.
• Filing of TDS Returns:
• Form 26QB for resident sellers.
• Form 27Q for NRI sellers.
• A TDS certificate (Form 16A) must be issued to the seller.
• In cases involving NRI sellers, the buyer should provide the TDS challan immediately after payment, while the TDS certificate will be available after the end of the quarter.

Conclusion

Buying a property is a major financial decision that requires strict adherence to tax and legal compliance. Consulting professionals such as Chartered Accountants and legal experts is highly advisable to ensure a seamless transaction and prevent potential legal and financial complications.

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.