Is TDS necessary on advance paid to NRIs?

When non-resident Indians (NRI) sell their property in India, is it necessary for the buyer to apply TDS (tax deducted at source) even on token amount paid at the time of signing the purchase agreement or is TDS mandatory only at the time of making the full and final payment when signing the sale deed?

—Name withheld on request

TDS is applicable on any payments made to NRIs which consist of amounts chargeable to tax under the income tax law. When buyers are able to ascertain the amount of capital gains in the hands of the seller and is fairly certain about it, they should deduct tax on the amount of capital gains and not the entire sale consideration. However, in practice, in the absence of a lower or nil tax deduction certificate from the tax officer, the buyer usually opts for TDS on gross sale consideration for the risk of being deemed as an assessee-in-default.

The buyer becomes obligated under the provision of the law to effect TDS at the earliest of the date of payment or the date of credit of income. Token amount forms part of the sale consideration and thus, even when an NRI sells her property and receives payment of such token amount, the buyer would be under an obligation to deduct tax plus applicable surcharge and cess (assuming gains are in the nature of long-term capital gains). If the buyer does not deduct tax at the time of paying the token amount but instead deducts tax only at the time of making the full and final payment, then he or she would be would be liable to pay interest on defaulted TDS sum.

In the current financial year, my NRI son has income from rent and bank interest, which will be approximately ₹8 lakh, and capital gain from sale of property of approximately ₹3 crore. Which ITR form should he fill this year?

—Name withheld on request

Rule 12 of the Income Tax Rules, 1962, prescribes the applicability of appropriate income tax return forms for an individual depending upon the type of income and other criteria. Since your son has not earned any income under the head – ‘profits and gains of business or profession’, he is required to file his return of income in Form No. ITR-2, which applies to resident individuals as well as NRIs.

Harshal Bhuta is partner at P.R. Bhuta & Co. Chartered Accountants