TDS on Residential Property

My mother was a resident Indian. We are four siblings and all of us are NRIs. My mother owned a residential property in Mumbai which was purchased way back in 1961. Now that our mother has passed away, we are desirous to sell the flat and take our respective share. She died leaving a will and appointed executors of her will. The flat is still in her name. Should the would-be purchaser deduct 1 per cent of the purchase price as TDS, or as we are NRIs, should he deduct 20 per cent? Please advise me on this one.

- M. Vyas.

A resident buyer of a property has to deduct tax at the source rate of 1per cent of the purchase consideration paid/payable to the resident seller u/s 194IA of the Income Tax Act, 1961. 

In your case as a seller, being the estate of your resident mother, Section 194IA of the Income Tax Act, 1961 is applicable and the deduction should be made at 1per cent by the prospective buyer. Under Section 195 of the said Act, income tax is required to be deducted in respect of payments to non-residents. The property is still not registered in you or your siblings names as the flat is still in the name of your mother and the executors have as yet not carried out the bequest. Had the flat been transferred to you and/or your siblings, the long term capital gains on the sale of the flat, it would attract deduction of income tax at the source rate of 20 per cent. The tax would be paid by the estate of your mother on the said sale and the balance could be distributed to you and your siblings as bequest. Such bequest will not be liable to tax. Besides, if you want to take the money outside India, the same should be done subject to the provisions of Foreign Exchange Management Act, 1996 and rules made there under.

I am interested in purchasing a residential house. However I propose to take loan from my relative rather than any financial institution. Would the interest payable for such loan be eligible for deduction from my income under the Income Tax Act, 1961?

- Domnic M.

Under Section 24(b) of the Income Tax Act, 1961 the assessee can claim deduction in respect to the amount of interest on capital borrowed for the acquisition, construction, repair, renewal or reconstruction of the property. As the capital is not borrowed from any bank or financial institution, the interest paid on loan taken for the purchase of the residential house property will be allowed as deduction.

If the house is used for self-occupation, the interest paid will be restricted to Rs 150000 in a financial year. However, if the property is rented or is deemed let out property, then there is no monetary limit on the deduction to be claimed. 

I have inherited a property and propose to transfer that property to my HUF, created on inheritance. The HUF has applied for permanent account number (PAN) for itself. However it does not have any taxable income. Should the HUF file its return?

- Ashok C.

Applying for and having a PAN is under the provisions of Section 139A of the Income Tax Act, 1961 whereas the filing of return of income is mandatory under Section 139 of the said Act. Thus, you are required to file your return of income, particularly, if you have taxable income or have incurred a loss in any financial year, which you propose to set off against your future income, or you want to claim deductions under the Act or you are entitled to a refund or if you have been directed by the Department, in any manner, to file the return of income. 

To answer your query, if your HUF is not having any taxable income, it may not be necessary for you to file its return of income.