Non-resident is at disadvantage when he sells his properties in India as compared to residents as they are subject to deduction of income tax at the rate more than 20% on the gross sale price of the property while it is 1% in case of residents. In this paper, we shall discuss how this disadvantage can be converted into advantage.
Indian Income Tax Act provides at least two mechanism whereby, the non-residents can pay tax only if the income is arising out of the transaction or tax which is actually payable on the INCOME (Capital Gains) if arising on the transaction. Non-Resident can even take advantage of tax treaty at this stage only.
In the first mechanism, the buyer can approach the tax authorities and get the certificate determining the amount on which he is obliged to deduct income tax thereby allowing a deduction of all cost of property even after indexation. This mechanism is quite simple and most appropriate where the non-resident either not available in India or find it difficult to deal which tax officers in India. As per this mechanism, following steps are necessary:
In the second mechanism, the Non-resident seller can approach to the tax authorities and get the certificate of lower deduction or no deduction of income tax on the transaction after submitting all cost related documents. Normally, non-residents who do have some connections/other income and filing tax returns in India will go this way as the tax officers may see certain additional documents and past history of the non-residents. As per this steps, the following steps are necessary:
Therefore these mechanisms provide great relief to both buyer and non-resident seller. On the one hand, the buyer has discharged his obligation and probable tax liability which may otherwise be his liability as representative assesse under Section-163 of the Income tax Act. On the other hand, the non-resident will not have to block his huge funds to be claimed refund of tax after filing his tax return in India.
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