Buying house from NRIs can prove costly

Chandigarh, May 13
Purchasing real estate property in the city from nonresident Indians has turned out to be an inordinately expensive deal for at least five city residents. Not only have they paid land prices much higher than those prevailing in the market, they are now faced with the prospect of shelling out another hefty sum in taxes on the profits made by the NRI sellers as the latter have chosen to return to their foreign abodes without clearing income tax dues.
The IT department’s international taxation wing has identified five such properties in various areas of the city, including Sectors 8, 15 and 43, where the NRI owners did the “vanishing act” without clearing their profit tax dues.
According to section 195 of the Income Tax Act, 1961 the purchaser of a property from an NRI needs to deduct tax at source on the amount of the deal. So if the deal is for, say Rs 10 lakh, tax needs to be deducted by applying a percentage on Rs 1 lakh. However, since many taxpayers are not aware of this fact and live under the ignorance of the principle of the profit tax being paid by the person who makes the profit, they have not made the required deduction.
Talking to The Tribune, a senior income tax official said the department will no longer remain a “silent spectator” in such cases. “We’ve already sent notices under section 201 of the Income Tax Act to defaulters. Almost Rs 45 lakh along with interest will be recovered from those who had bought properties from NRIs in the city”, the official added.
According to section 201(1A) of the act, if a person is held responsible for nondeduction of tax as required under the act, he or she will be liable to pay simple interest at the rate prescribed under this section on the amount of such tax from the date on which such tax was deductible and up to the date on which such tax is actually paid. It may be mentioned that sections 201(1) and 201(1A) operate simultaneously.
However, most nonresident Indians are not aware their tax liability does not depend on their nationality but on their residential status. If someone spends less than 182 days in India during a financial year he or she is considered a nonresident for tax purposes. This means any income he earns outside India is not taxed in India but if he has made capital gains from rent in the country then he is supposed to pay tax to the income tax department. If he fails to do so the buyer will have to pay the dues. So next time you decide to buy property from an NRI remember to deduct the tax on the transaction at source.