The Indian Finance Minister while announcing the Budget 2013-14 introduced TDS on Property @ 1% on all Immovable Property Transactions over Rs. 50 Lakhs under Section 194IA.
Reason for Introduction of TDS on Property
P. Chidambaram while introducing TDS on Property said that Transactions of Immovable Property are usually undervalued and under-reported. Almost half of the Transactions don’t even carry the PAN Card No. of the parties concerned.
With a view to improving the reporting of such transactions and the taxation of Capital Gains, P. Chidambaram has introduced section 194IA which states that TDS on transactions of immovable property is to be deducted @ 1% where the consideration exceeds Rs. 50 Lakhs. This Section 194IA would be applicable wef 1st June 2013.
However, Chidambaram specifically mentioned in his Budget speech that sale of Agricultural Land would be exempted from applicability of TDS.
Although the Finance Minister has introduced TDS on Property @ 1%, the corresponding provisions of Section 54 have not been amended. This would lead to anomaly wherein tax may be required to be deducted even in cases where the capital gains are exempted under section 54.
- Exemption of Long Term Capital Gains under Section 54
- Tax benefits of Home Loan under Section 24, 80C, 80EE
Amount on which the TDS is to be deducted
TDS @ 1% is to be deducted on all Property Transactions which are above Rs. 50 Lakhs. This TDS is to be deducted on all types of Property Transactions irrespective of whether the property in consideration is a flat or a building or a vacant plot. TDS is to be deducted irrespective of whether it is a Residential Property or Commercial or Industrial Property. TDS is to be deducted on all types of property transactions except Agricultural Land.
TDS is to be deducted on the total amount paid to the Seller excluding GST. This can be explained with the help of an example:-
|Transaction Value for Purchase of Property||Rs. 80,00,000|
|GST on above Property (if property is under-construction)||Rs. 9,60,000|
|Total Amt to be paid||Rs. 89,60,000|
In the above mentioned case, TDS would be deducted on the Transaction Value of Property i.e. Rs. 80 Lakhs and not on the GST levied thereon. Therefore, the TDS to be deducted would be 1% of Rs. 80 Lakhs i.e. 80,000.
This TDS is required to be deducted in all cases irrespective of the Capital Gains arising to the Seller. In case, the Seller is of the opinion that excess TDS has been deducted, he can claim refund of the excess TDS Deducted while filing the income tax return. (Refer: Refund of excess TDS Deducted on Sale of Property)
It is to be noted that the buyer cannot apply for lower deduction of TDS in the above mentioned case and the TDS would be deducted @ 1% of the Total Property Transaction Value.
In case of Home Loan, the TDS would be deducted when the payment is made to the Seller and not when the EMI is paid to the Bank.
- Recommended Read: TDS on Property purchased on Home Loan
Tax deducted on Property to be deposited with Govt
As per the Income Tax Act, any TDS deducted shall be deposited with the govt on or before the specified due date of deposit of TDS. Moreover, any person deducting TDS shall also apply for a TAN No. under Section 203A. This TAN No. is mandatory required to be quoted at the time of deducting any TDS and also at the time of filing returns and deposit of TDS with the Govt.
The insertion of this new section 194IA for deduction of TDS on Property would have caused unnecessary hardship to the buyer of the property as he would have to apply for a TAN No. before purchasing any property. So as to remove any such hardship, the govt has introduced a new sub-section(3) to Section 194IA which states that a person deducting TDS on Property is not mandatory required to possess a TAN No.
As per Notification No. 30/2016 dated 29th April 2016, the TDS deducted by the buyer at the time of making the payment to the seller has to be deposited within a period of 30 days from the end of the month in which the deduction has been made. For eg: If the TDS has been deducted in the month of April, it should be deposited with the govt before 30th of May. The same applies to all other months as well.
All details regarding the transaction and TDS on Property are required to be furnished in Form 26QB and this Form 26QB is required to be submitted at the time of payment. Details in this form cannot be furnished manually and can only be furnished online through the following link
This Form 26QB can only be submitted online through the above mentioned link. However, the payment of TDS can be done online as well as physically through Bank. After the submission of the Form 26QB – the payer would be given the option to either deposit the TDS online or take a print -out of the furnished Form 26QB and deposit the TDS in the Bank.
After depositing the TDS, the buyer of the property would also be required to issue Form 16B to the Seller of the property in respect of the TDS deducted and deposited with the govt. Form 16B can be downloaded from the website of the centralised processing cell of TDS (CPC-TDS) i.e. www.tdscpc.gov.in after 15 days from the end of month in which the payment has been made.
- Recommended Read: How to Download Form 16B online for TDS on Property?
Procedure for Deposit of TDS on Property with Govt.
The Buyer of Property is required to deduct TDS on Property from the Purchase price of the property and deposit this TDS with the Income Tax Department. Form 26QB is required to be furnished mentioning all details which include:-
- PAN No. of the Buyer
- Address of the Buyer
- PAN No. of the Seller
- Residential Status of the Seller
- Address of the Seller
- Address of the Property transferred
- Date of Payment
- Amount Paid
- Date of Agreement
- Total Transaction Value
Once all the details are furnished, the form will ask for the preference for deposit of tds on property with the income tax department. You can either pay the TDS on Property online through net banking and if this option is chosen, this Form 26QB will automatically direct you to the e-payment gateway.
You can also refer this tutorial on procedure for e-payment of TDS on Property online
Alternatively, the buyer also has the option of depositing the TDS Deducted on Property offline through Banks as well. If the buyer intends to deposit the TDS on Property offline through Banks, he would be required to select this option in Form 26QB, then take a print out of this Form 26QB and submit the same along with the payment to the authorised bank branches. The list of banks wherein TDS on Property can be deposited is mentioned in this link.
It should be noted that there is no option for furnishing details in Form 26QB manually and all these details are required to be furnished in the online Form 26QB and the buyer can then take a print out of the same and submit this Form 26QB along with the payment to the Bank.
You can also refer this tutorial for procedure for payment of TDS on Property through Banks:-
TDS on Amount paid in Installments
As per Section 194IA, TDS is to be deducted at the time of payment. The date of transfer is not relevant as TDS is not required to be deducted at the time of transfer but is required to be deducted at the time of payment.
Therefore, irrespective of the date of transfer, the TDS is required to be deducted at the time of payment. So even if advance payment is being made, TDS would be required to be deducted. Moreover, in case the payment is being made in Installments to the Seller, the TDS would be deducted at the time of paying each installment.
This TDS is required to be deducted when the installment payment is made to the builder and not when the EMI is paid to the Bank.
More than 1 Buyer or 1 Seller
In case there is more than 1 buyer and the individual purchase price of each buyer is less than Rs. 50 Lakhs, but the aggregate value of the transaction exceeds Rs. 50 Lakhs, Section 194IA would be applicable and the TDS on Property would be required to be deducted and deposited with the govt before the due date.
Similarly, if there is more than 1 seller and the individual sale price of each seller is less than Rs. 50 Lakhs, but the aggregate value of the transaction exceeds Rs. 50 Lakhs, Section 194-IA would be applicable and TDS would be required to be deducted by the buyer at the time of making the payment to the seller.
Penalty for Non-Deduction/ Deposit of TDS on Property
Interest on Late Deposit of TDS on Property – In case the TDS has not been deducted, the buyer would be required to pay 1% interest per month on the amount not deducted. In case, the TDS has been deducted but has not been paid, Interest @ 1.5% per month would be applicable in such a case.
Penalty for Late Deposit of TDS on Property – The Income Tax Officer may also levy a penalty of upto Rs. 1 Lakhs for Late Deposit of TDS on Property.
Penalty for Late Filing of Form 26QB: In case of late filing of TDS Return, a penalty of Rs. 200 per day would be levied. However, the Penalty should not exceed the amount of TDS for which this Form has not been filed.
Other Relevant Points regarding TDS on Sale of Property
- In case of more than 1 buyer/ 1 seller, Form 26QB has to be filled in separately for each buyer-seller combination. Eg: In case of 1 buyer and 2 sellers – 2 forms have to be submitted, and in case of 2 buyers and 2 sellers – 4 forms have to be submitted for their respective property share.
- The PAN Card of the Seller as well as the Buyer should be mandatory furnished in the Form 26QB for furnishing information regarding the tds on property and the sale transaction. If the Seller does not have a PAN Card, then TDS would be deducted @ 20% of the Total Transaction Value.
- The above provisions are applicable for TDS on Purchase of Property only. These provisions won’t be applicable on payment made as Rent for Property. The provisions of Section 194I are applicable for TDS on Rent and TDS @ 10% is deducted in such a case.
- It is important for both the buyer and the seller to file an Income Tax Return in the year of purchase. Although, this is not mandatory but if return is not filed, it may lead to generation of an income tax notice.
- It is always advisable to mention the details of the TDS Deducted in the Sale Agreement.
- In case of any mistake incurred in filing the Form 26QB, the same can be also rectified online. Refer: Procedure for Online Correction of Form 26QB.
The above article mainly talks about TDS Deduction for purchase of property from Resident Indian only.Here is a short video explaining the manner in which TDS would be deducted on purchase of property. In the following video, the author talks on NDTV on How TDS would be deducted for purchase of property from both Resident as well as Non Resident Indian (NRI).
e-Book on Capital Gains Tax on Sale of Property
On the sale of any Property, Capital Gains Tax is required to be paid. However, there are several exemptions which can also be claimed from the Capital Gains Tax which reduces the tax liability.
The manner of computation of Capital Gains Tax and the Capital Gains Exemptions have been explained in this e-book in simple words with 40+ examples which can be purchased through this link.
The key topics covered in this e-book are:
1. Computation of Capital Gains
2. Tax on sale of Inherited Property
3. Tax on sale of Under-Construction Property
4. Sale of Property below Circle Rate/ Stamp Valuation Rate
5. Capital Gains Exemptions on sale of Property
6. TDS on sale of Property
7. More than 40 comprehensive examples
The total no. of e-books sold till date are 10,000+ and the same can be purchased for Rs. 93 through this link – e-Book on Capital Gains Tax on Sale of Property.