TDS on Sale of Property: A Comprehensive Guide
When buying property in India, understanding the tax implications is crucial. One such important aspect is the Tax Deducted at Source (TDS) on the sale of property. This article will walk you through everything you need to know about TDS on property transactions, ensuring you stay compliant with the law and avoid any penalties.
What is TDS on Sale of Property?
Under Section 194-IA of the Income Tax Act, property buyers in India are required to deduct TDS if the property value exceeds Rs 50 lakh. This means that 1% of the transaction cost must be deducted and submitted to the government as TDS. For property deals worth less than Rs 50 lakh, TDS is not applicable.
TDS on Sale of Property Under Section 194-IA
Key Provisions of Section 194-IA
Section 194-IA mandates that a buyer must deduct 1% of the transaction cost as TDS if the property value is over Rs 50 lakh. This section does not specify which amount should be considered for TDS calculation if there is a variation between the stamp duty value and the actual sale value of the property.
Stamp Duty Value vs. Sale Amount
One cannot register a property below government-determined circle rates, which are used to calculate stamp duty. The market rate of the property could be higher or lower than its stamp duty value. In such cases, the buyer must calculate TDS based on the higher value, as per the announcement made on February 1, 2022.
Amendment to Section 194-IA
To remove inconsistencies, it was proposed to amend Section 194-IA to provide that TDS should be deducted at the rate of 1% of the higher value between the sum paid or credited to the resident and the stamp duty value of the property.
Who Deducts TDS on Property Sale?
To curb the use of unaccounted money in property transactions, the government introduced a law requiring the buyer to deduct TDS while paying the seller. The responsibility to deduct and remit TDS lies with the home buyer. The seller, from whose income the tax has been deducted, is entitled to get credit for the amount deducted based on Form 26AS or a TDS certificate issued by the buyer.
Properties Covered Under Section 194-IA
Types of Properties
Section 194-IA covers residential property, commercial property, and land. However, transactions involving agricultural land are not covered under this provision.
TDS on Property Sale by NRI
The treatment of properties sold by Non-Resident Indians (NRIs) is different, as the government also deducts capital gains tax along with TDS. The TDS rate is higher in such cases.
| Capital Gains Type | TDS Rate |
|---|---|
| Long-term capital gains (property held for more than 2 years) | 20% |
| Short-term capital gains (property held for less than 2 years) | According to the tax slab of the NRI |
When to Deduct TDS and How to Pay It?
The purchaser must deduct TDS either at the time of executing the conveyance deed or at the time of payment of advance if any advance is paid before the execution of the deed. The TDS amount must be deposited to the credit of the central government within 30 days from the end of the month in which the tax is deducted.
Steps to Pay TDS
- Fill in Form-cum-challan No 26QB.
- If there are multiple buyers or sellers, fill in separate Form 26QB for each set.
- Submit the details of all buyers and sellers in each Form 26QB.
TDS on Sale of Property by NRI
The TDS rate applicable to NRIs varies based on the type of capital gains:
| Capital Gains Type | TDS Rate |
|---|---|
| Long-term capital gains (property held for more than 2 years) | 20% |
| Short-term capital gains (property held for less than 2 years) | According to the tax slab of the NRI |
TDS on Sale of Property in Case of Joint Owners
In 2018, the Delhi Bench of the Income Tax Tribunal ruled that joint buyers are not liable to pay TDS under Section 194-IA if the share of each individual is less than Rs 50 lakh.
How to Claim TDS on Sale of Property?
The buyer must issue Form 16B to the seller after deducting and paying the TDS to the income tax department.
TDS on Rent
Individuals or HUFs paying rent are also liable to deduct TDS if the rent exceeds Rs 2.40 lakh for the FY 2020-21. This threshold was Rs 1.80 lakh till FY 2019.
Details Required for Payment of TDS
The buyer must provide details like name, address, PAN, mobile number, and email ID of both the seller and buyer in Form 26QB. The complete address of the property, date of agreement, total value of consideration, and date of payment must also be provided.
Lower Deduction or Nil Deduction of TDS
There is no provision for lower or nil deduction of TDS on immovable property. The buyer must deduct tax at source if the consideration exceeds Rs 50 lakh.
Due Date for Depositing TDS
After deducting TDS, the buyer must deposit it with the government by the 7th of the following month.
Consequences of Non-Payment of TDS
Failure to deduct and submit TDS can result in penalties, including interest or imprisonment of up to seven years. The buyer is responsible for any penalties, even if the seller makes the payment.
Penalty for Non-Filing of Form 26QB
Penalties for non-filing of Form 26QB include:
- Interest on not deducting TDS: 1% per month from the date TDS was supposed to be deducted until the actual deduction.
- Interest on not depositing TDS: 1.5% per month from the date TDS was deducted to the date of payment to the government.
How to Pay TDS Through Challan 26QB to Get Form 16B
Information Needed to Fill Form 26QB
- Residential status of the seller
- PAN of the seller and buyer
- Communication details of the seller and buyer
- Property details
- Amount paid/credited and tax details
Process to Fill Challan 26QB
- Log on to the e-filing portal.
- Under the ‘e-file’ section, click on ‘e-Pay tax’.
- Click on ‘New Payment’.
- Select ‘Proceed’ under ‘26 QB (TDS on Sale of Property)’.
- Fill the form as applicable.
- Select the mode of payment and continue to make the payment.
- A challan counterfoil will be displayed as proof of payment.
Steps to Download Form 16B
- Register and log in on the TRACES portal.
- Select “Form 16B (For Buyer)” under “Downloads”.
- Enter the details of the property transaction.
- Enter the Assessment Year, Acknowledgment Number, PAN of Seller, and click on “Proceed”.
- Submit the request and note the request number.
- Download the requested files from the “Requested Downloads” section.
TDS: Points for Buyer to Remember
- Deduct 1% or 0.75% TDS from the sale consideration, depending on the date of payment.
- Verify the seller’s PAN with the original PAN card.
- Ensure accuracy in quoting PAN and other details in the online form.
TDS: Points for Seller to Remember
- Provide your PAN to the buyer.
- Verify the deposit of taxes deducted by the buyer in your Form 26AS Annual Tax Statement.
Key Things to Remember About TDS
- Buyers must deduct and pay TDS on property valued over Rs 50 lakh.
- The responsibility to deduct and submit TDS lies with the buyers.
- Buyers must fill Form 26QB to credit the TDS.
- Separate forms must be filled for each party if there are multiple buyers or sellers.
Conclusion
Understanding TDS on the sale of property is essential for both buyers and sellers to ensure compliance with tax laws and avoid penalties. By following the guidelines outlined in this article, you can navigate the complexities of TDS on property transactions with ease.