Plot purchaser could choose to deduct a better TDS

My good friend is a non-resident Indian (NRI). He needs to promote a plot in India. An extended-term capital achieve (LTCG) tax of 20% can be relevant on the capital achieve because the plot was purchased in 2015. If he transfers the registration to his spouse—who’s an Indian resident—after which sells the property, will the tax deducted at supply (TDS) cut back to 1%?

—Name withheld on request

Under the Indian earnings tax legislation, if the “vendor” of an immovable property (other than agricultural land) qualifies as a “resident” of India in the course of the related monetary yr and the sale consideration exceeds ₹50 lakh, the customer is required to deduct TDS at 1%.

If the “vendor” qualifies as a “non-resident” in India, the customer is required to deduct TDS at a specified charge on taxable capital positive factors on the sale of immovable property. The specified charge is 20% (plus relevant surcharge and well being and training cess) in case of long-term capital positive factors and 30% (plus relevant surcharge and well being and training cess) in case of short-term capital positive factors. Alternatively, the customer or vendor could method the earnings tax officer to use for decrease or nil TDS certificates.

The NRI vendor could switch the property within the identify of his resident spouse by means of reward. However, there can be stamp obligation, registration and documentation value on such a switch.

Further, as a consequence of earnings clubbing provisions within the earnings tax legislation, the capital positive factors earnings can be clubbed within the arms of the NRI vendor, who can be liable to pay earnings tax in India on LTCG.

The clubbing doesn’t apply provided that the switch is for ample consideration or in reference to an settlement to stay aside. Considering the clubbing provision, the customer could choose to deduct TDS at a better charge within the identify of the NRI vendor solely.

Sonu Iyer is tax companion and folks advisory companies chief, EY India.

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