Buying the property from Non-Residents? Wait and Have a look on Tax Impacts

A resident of India is a person who stays in the country for about 182 in a relevant financial year or 365 days or more during the last four years. This time of staying of an individual in India determines the residential status of a person that is further helpful in tax-related issues. A person is considered non-resident of India if that person is not a tax resident.

Buying a property in India depends upon the residential status of the individual. If you want to buy a flat in India, you should try to find out the tax-status of the seller.  Buyers who purchase the property from non-residents go through many tax-related challenges as it becomes difficult for them to determine the tax status (resident or non-resident) of the seller.

A property purchased from a non-resident requires a tax deduction of approximately 20%, but if the seller is a tax resident, this tax deduction amount decreases to 1%. The illegal deductions can result in penalties and cases of prosecutionfor the buyer.

How to find out the residential status of the seller?

The people selling the best luxury apartments in India usually reside in some other city away from the location where the property is situated. The buyers and the sellers communicate through emails and phone. The seller usually completes the sale deals through by using the documentssuch astheir PAN cards or other identification materials like Aadhaar. Unless clearly disclosed, the buyer is not able to find out the actual status of the seller.

In such cases, the buyer should directly ask about the residential status of the seller. The buyer can also ask for IT returns or other income tax documents of the seller. The passport details can also be checked as it may help the buyer to find out the number of days that person stayed in India. The time of stay should include the total number of days of staying in India in a particular financial year as well as a period of the last four years.

A buyer can also take a written document from seller mentioning the residential status. The sale agreement should also be verified by an advocate to prevent the issues of any further income tax disputes.

For the deduction of tax at source, the buyers usually register for TAN that results in the filing of nil return, if the property is bought from non-resident. To avoid this, the buyer can apply to jurisdictional TDS officer for the cancellation of TAN mentioning the valid reasons.