How to reduce tax deduction (TDS) on Sale of Property by Non Resident Indians

Every person making specified payment for Goods/services received shall be held responsible for deducting the tax at specified rates either at the time of credit in the books or payment to the recipient, whichever is earlier and only pay the balance amount to the recipient. This ensures tax is collected in advance, checks tax evasion and also helps track income of recipients in the future. However, this scheme of deducting tax at source itself may create hardship to few taxpayers who may not have a taxable income at all.

An application for lower tax on sale of property in India by Non-Resident Indians is very helpful if they want to minimize the higher rate of tax deducted by the buyer in case of NRI’s

FORM No. 13 is an option which was released under rules 28 and 37G of Income Tax Rules and is for application to Income tax department by a person for a certificate under section 197 and/or sub-section (9) of section 206C of the Income-tax Act, 1961, for availing no deduction of tax or deduction at a lower rate than the prevalent rate in the Income tax act.

Who is eligible to file Form 13?

Certificate under section 197 of Income tax act, 1961

Every person is eligible to apply for Form 13. It is to be noted that benefit of lower/Non deduction of taxes will be allowed only when the Assessing officer is satisfied that the income of the assessee is justified for lower/ Non deduction of taxes or where deduction at higher rate would create an undue hardship against the assessee

Person for the purpose of Form 13 application includes Individual, HUF, AOP, BOI, Trust claiming benefit of section 11 or section 12 or section 10 of the Income Tax Act, society, company, firm etc. A payee or taxpayer may submit an application to the Assessing Officer (AO) for a certificate authorizing no or lower TDS/TCS deductions. The following Incomes are eligible for this form:

• Salary Income
• Dividend Income
• Interest Income
• Contactors Income
• Insurance Commission
• Brokerage or Commission
• Rent Income
• NRI Income u/s 195
• Compensation on acquisition of Immovable Property
• Income from units of investment fund
• Income from investment in securitization trust

Application in Form 13 can only be filed for payments (as specified in the above list) on which TDS is required to be deducted under Income Tax Act, 1961. If the payment is required to be deducted under any other section of the Income Tax Act, then application in Form 13 cannot be filed.

Thus, Application can be made where income of any person attracts TDS as per above mentioned sections and income of the recipient justifies non-deduction or lower deduction of income tax based on his estimated final tax liability.

Documents required for application

1. Name and PAN No of the assessee and tax deductor
2. Details regarding the purpose for which the payment is being received
3. Details of income of the last 3 years and the projected current year’s income
4. Details of payment of tax of the last 3 years
5. Details of tax deducted/ paid for the current year
6. Estimated tax Liability for the current year
7. Email ID and Mobile Number of the Assessee
8. TAN details of the tax deductor
9. Any other document based on the nature of Income
10. Certificate under sub section (9) section 206C of Income tax act, 1961

Assessee can also make an application for non-collection or collection of tax at lower rate via Form 13. Application in Form No.13 in accordance with Rule 37G shall be submitted by the buyer or licensee or lessee for lower collection of taxes or Non collection of taxes with regard to the transactions referred to section 206C(1) or section 206C(1C) and the Assessing officer is satisfied that the total income of the buyer or licensee or lessee justifies the collection of the tax at any lower rate than the relevant rate specified, the Assessing Officer shall issue a certificate for collection of tax at such lower rate than the relevant rate specified in section 206C(1) or 206C(1C).

Certificate Under section 197A

While Section 197 application can be made by any person including corporates, in case of certain specified income category, resident individuals/any person not being firm or company as the case may be, may also submit a self-declaration in specified forms (Form 15G/Form 15H) for non-deduction of TDS as per section 197A.

Validity of the approval of Form 13:

Income-tax provision does not provide for a deadline to make an application under Section 197. However, as TDS is made on income of on-going financial year, it is advisable to make an application at the beginning of financial year in case of regular income throughout the financial year and as and when the need arises in case of one-off incomes.

Form 13 issued under section 197 for a particular financial year stands valid from the date of issue and throughout the financial year unless cancelled by the assessing officer (TDS) before the expiry. 

FAQs

1. What is the exemption under Section 197 of the Income Tax Act?
   Eligible Taxpayers can fill out Form 13 under Section 197 of Income Tax Act and get the benefits of lower deduction or non-deduction of TDS
2. How long does it take for Form 13 to be approved?
   The application must be resolved within 30 days of the end of the month it was received once it has been presented to the jurisdictional assessing officer (TDS) in its entirety.
3. When to file Form 13?
   A request may be submitted at any time during the fiscal year by the payee. However, filing   an application at the start of the year for income earned all year long is a smart idea.
4. When to file Form 13 to claim low/no tax deduction for purchasing a property?
   It is advisable to submit Form 13 application at least a month before the property  registration as it would take around 30 days’ time to get approval from Assessing officer and also, buyer has to deduct tax on the sale value paid before transfer of property.
5. Can an NRI can file Form 13 to apply for a lower tax deduction certificate?
   Yes. NRIs are also eligible to file Form 13 for claiming Low/No deduction of tax from the Income tax department by providing the above details.

This blog post has been written by Yuvarani of V Ramaratnam and Company