Form 27Q: TDS on payments made to Non-residents (NRIs)

TDS
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1

Whenever you make a payment to a Non-Resident Indian (NRI), you’re required to deduct tax before transferring the money.

Form 27Q is used to report the tax deducted at source (TDS) on these payments.
This applies to most payments made to NRIs—except for salaries. Some common examples are:

  • Rent paid on property
  • Interest earned on investments
  • Buying property from an NRI
  • Payments related to selling shares or securities
  • Payments to sports associations or NRI sports players (like foreign players in IPL)
  • Interest on loans borrowed

Why TDS?

See, since NRIs don’t have a regular presence in India which makes it difficult for the government to monitor their income. TDS prevents tax evasion by helping the government track NRIs’ Indian income sources.

How much TDS needs to be deducted?

For individuals like us, the most common scenarios for payments to NRIs could be,

  • rent payments
  • property purchases from NRIs

Here are the TDS rates applicable for both of these transactions.

27Q TDS rates
27Q TDS rates865×158 12.3 KB

Note: In addition to the applicable rates of TDS, you need to add cess and surcharge (if applicable).

Let us take an example to help you understand the calculation.

Suppose you pay ₹60,000 per month as rent to an NRI, here’s how you can calculate your TDS.
27Q TDS calculation

Note: To be on safe side, always consider cess and surcharge while deducting TDS. Failing to do so can result in a short deduction notice. Cess is applicable at 4% of the tax liability whereas the surcharge rate will vary depending on the NRIs total income.

When do you make the TDS payment?

After deducting TDS, you must deposit it with the government by the 7th of the following month. For example, if you deduct TDS in April, the payment should be made by May 7th.

Filing Form 27Q:

Once you’ve deducted and deposited the TDS, you also need to file Form 27Q at the end of each quarter. The due dates for filing are as follows:

27Q due date

Now, here are a few things to keep in mind while deducting TDS and filing Form 27Q:

  1. Obtain TAN: To file TDS returns, you’ll need a TAN (Tax Deduction and Collection Account Number). You can apply for this from the TIN NSDL website.
  2. Timely Deposit of TDS: Deposit the deducted TDS with the government by the 7th of the following month to avoid penalties and interest.
  3. Issue Form 16A: Once the TDS is deposited and Form 27Q is filed, provide the NRI with a TDS certificate (Form 16A). This helps them claim credit for the deducted tax.
  4. Check the DTAA (Double Taxation Avoidance Agreement): If India has a DTAA with the NRI’s country of residence, they may be eligible for reduced TDS rates. To avail of this, the NRI must provide a Tax Residency Certificate (TRC) from their country.
  5. File Form 27Q Correctly
    • Fill out all details, including the NRI’s name, address, PAN, and details of the payment.
    • Ensure that the TDS amount matches what you’ve deposited.
2

Property was never completed, in the process of getting refund through RERA. Looks like they are only going to refund the amount paid to builder, not the TDS paid to Income Tax department, not sure how it works. Does TDS eventually goes to the builder? I was paying 1% of demand amount to IT department. Is it possible to get the TDS back?

3

No worries. The TDS will reflect in your 26AS and AIS / TIS. Based on that you can file ITR and get back your TDS amount. Ensure you collect the challan for TDS payment and Form 27Q (after respective Quarter finished). You are entitled to keep the records.

4

Thanks @Srikanth Last TDS was paid July 2018, paid around Rs. 40k total in TDS since Oct 2013. How do I file ITR? Can I still claim starting from 2013?

1 Like
5

I think you need professional help. Wait for Quicko response.

6

ok thanks I managed to log in to income tax e filing but it’s not very user friendly.

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Hi @khadanja

As rightly said by @Srikanth, the TDS will be reflected in your form 26AS for AY 2023-24, so you can claim the same as tax credits while filing your ITR.

However, you cannot claim the TDS since 2013.

In case you want more clarity, you can Ask an Expert.

Hope this helps.

8

Do I need to log in to TRACES to claim TDS refund for last year or income tax e filing portal. Do I require a physical token for traces?

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Hi @khadanja

You can claim the TDS while filing your ITR.

10

What will be the Nature of remittance in form 27Q when buying property from NRI having long term capital gains?

Form 15A/15B is only required when buyer is doing outward foreign remittance, correct?
If the payment to seller is made in Indian Bank account then 15A/15B is not applicable, correct?

11

Hey @Ankit_Gupta1,

The nature of remittance will be long-term capital gains. Moreover, the filing of Form 15CA/CB depends on the transaction amount.

You can connect with the respective bank to confirm the requirement of Form 15CA/CB.

You can also Book a MEET, if you want our assistance in filing Form 27Q.

Hope this helps!

12

Seller (NRI) had provided me a lower TDS certificate (197), I had mentioned the same while filing 27Q. Now i am trying to do the correction of filed return to modify deductee details in order to update the ‘Date of Deduction’, getting a message “Certificate is fully consumed. Please check consumption status of certificate before furnishing certificate details in TDS statements to avoid any defaults” when Lower TDS certificate(197) number is entered.
In case if i dont provide the 197 number then i may get default as ITD will consider higher deduction rate.

Please guide me on how to proceed further and update date of deduction.

13

Hey @Prem_shivaprasad,

This seems like a case-specific query and more details would be required to help on the same.

You may connect with one of our tax experts who can help you with this by booking a MEET.

14

Seller (NRI) has Deducted TDS of Buyer (NRI). We have filed deposited TDS with the government and also filed Form 27Q. TDS Returned filed through Income Tax Portal. Now we want to download Form 16A but we are unable to register on traces. We are getting the error of “Invalid details against challan”
Can anyone guide us about how to deal with this error.

15

What if in a property sale where the seller is an NRI and the buyer is a resident and the buyer harasses the seller by not filing the 27Q after the sale deed is registered and asks him to do some home improvements in return for that? Also what if the buyer has a son who is an NRI and while filing the 27Q quotes his son’s PAN instead of the seller’s PAN and gets the TDS credited to his son’s account?

SO how can an NRI seller protect himself from being exploited by the buyer?

16

An NRI seller can take several steps to safeguard against such exploitation in a property sale:

1. Draft a Strong Sale Agreement

  • Include a clause mandating timely filing of Form 27Q by the buyer. Specify that the TDS deduction, filing, and payment are required within a particular timeline after the sale deed registration.
  • Add penalty clauses for failure to comply, holding the buyer responsible for any financial implications due to late or incorrect TDS filing.
  • Consider including terms about release of any necessary clearances or completion of sale formalities contingent upon the TDS filing.

2. Obtain a Lower TDS Rate Certificate (if applicable)

  • Before the transaction, the NRI seller may apply for a lower or NIL TDS certificate from the Income Tax Department if the effective tax rate would be lower. This could make the TDS process smoother and give more control over the tax deductions, reducing scope for mishandling.

3. Monitor the TDS Filing and Credit

  • Request a Form 26AS check or statement proof that shows the TDS credit under the seller’s PAN before finalizing all steps of the sale process.
  • Monitor the transaction in the TRACES portal after the buyer files Form 27Q, ensuring the credit goes to the seller’s PAN.

4. Use Escrow Services for TDS and Final Settlement

  • An escrow account can hold part of the property sale proceeds to ensure compliance. Release of these funds can be conditional on the buyer filing Form 27Q correctly and within the stipulated timeframe.

5. Engage Legal Representation

  • A legal professional can help draft protective terms and offer assistance in case of non-compliance. If the buyer threatens non-compliance, the NRI seller could potentially take legal action for breach of contract and, if necessary, involve tax authorities to address the misuse of TDS filings.

6. Notify Tax Authorities of Incorrect TDS Credit

  • If the buyer credits TDS under an incorrect PAN, the seller can file a complaint with the Income Tax Department. Misuse of PAN details could qualify as fraud, and the department may take action to correct the credit and penalize the buyer.

Taking these steps can help prevent situations where a buyer might exploit the TDS process for personal gain and ensure the seller receives the correct credit.

The above steps are while entering into the agreement but if If this situation has already occurred, there are still steps an NRI seller can take to address the issue and potentially resolve it:

1. Contact the Income Tax Department

  • Report the incorrect TDS filing: The seller can report the issue to the Income Tax Department, explaining that the TDS has been credited to the buyer’s son’s PAN incorrectly. Provide documentation, including the sale deed, details of the sale transaction, and any communications with the buyer.
  • Request reallocation of TDS credit: Through the Income Tax Department’s grievance redressal mechanisms or directly via the TRACES portal, the seller can request that the TDS credit be corrected and applied to the seller’s PAN.

2. File a Rectification Request on the TRACES Portal

  • The seller can request a correction on TRACES. Though the primary filer (buyer) typically initiates corrections, the seller can file a complaint for mismatch or misreporting. If the buyer refuses to cooperate, the seller can attach proof, explaining the circumstances and requesting assistance from the tax authorities.

3. Send a Legal Notice to the Buyer

  • If the buyer is uncooperative, a legal notice can be sent demanding that they rectify the TDS filing and submit Form 27Q correctly with the seller’s PAN.
  • The notice should outline the contractual obligations breached and state potential actions (like claims for damages or interest due to incorrect TDS filing) if they don’t comply.

4. Involve a Tax Professional or Chartered Accountant

  • A tax professional can guide the seller through detailed steps, such as filing complaints with the tax ombudsman or higher tax authorities, if needed. They may also facilitate faster correction with the Income Tax Department’s help, given their access and familiarity with the process.

5. Pursue a Refund Claim on Excess TDS Credit

  • If the correction isn’t successful, the seller may still be able to claim a refund for the excess TDS under the buyer’s son’s PAN, though this could be a prolonged process. With proof of the incorrect TDS filing and credit, this can sometimes be pursued as an erroneous credit under another PAN.

6. Consider Civil Action for Damages

  • If this mishandling results in significant financial or compliance issues, the seller could pursue civil action to recover damages from the buyer. Legal action could include claims for both breach of contract and restitution for financial and tax-related losses.

7. Future Tax Returns and Disclosures

  • When filing their tax return, the seller should disclose this issue, explain the misapplied TDS, and claim the amount as refundable or wrongly credited if the matter isn’t resolved. This documentation may support any ongoing rectification attempts and protect the seller from future disputes.

These actions can help the seller regain control over their tax credit and possibly penalize the buyer for unethical behavior…

17

Thanks Diksha for the detailed suggestions…really helpful and much appreciated.