Tax Deducted at Source (TDS) on property transactions is an important aspect of real estate dealings in India. It ensures tax compliance and helps the government track high-value property purchases. This article explains TDS on Property Purchase, its concept, applicability, rates, and process of TDS on property transactions. Understanding the intricacies of TDS on property purchases is essential for both buyers and sellers to navigate legal obligations and avoid potential penalties.
Applicability of TDS on Property Purchase
As per Section 194-IA of the Income Tax Act, TDS is applicable when a buyer purchases immovable property—such as land, residential, or commercial buildings—valued at ₹50 lakh or more. The buyer is mandated to deduct TDS at 1% of the total sale consideration at the time of payment to the seller. It’s important to note that this provision excludes agricultural land.
Key Points to Consider
- Threshold Limit: TDS is required only if the property’s sale consideration is ₹50 lakh or more. If the property is jointly owned, the threshold applies to the property’s total value, not individual shares.
- Types of Properties: It applies to the purchase of all immovable properties, including residential and commercial properties, but excludes agricultural land.
- Who Deducts TDS?: The buyer (not the seller) is responsible for deducting and depositing the TDS.
- Who is Liable?: Both resident and non-resident sellers are subject to TDS, but different rates apply.
- Multiple Payments: In cases where the payment is made in installments, TDS must be deducted on each installment.
- PAN Requirements: Both the buyer and seller must provide their Permanent Account Numbers (PAN). Failure to furnish the PAN can result in TDS being deducted at a higher rate of 20%.
- TAN Not Required: Buyers are not required to obtain a Tax Deduction Account Number (TAN) for deducting TDS on property purchases.
TDS Rate on Property Purchase
- For Resident Sellers: TDS is deducted at 1% of the total transaction value.
- For Non-Resident Sellers (NRI Sellers):
- The TDS rate varies based on the type of capital gain:
- Long-Term Capital Gains (held for more than two years): 20% (plus surcharge & cess)
- Short-Term Capital Gains (held for less than two years): As per the income tax slab of the seller
- The TDS rate varies based on the type of capital gain:
Procedure for TDS Deduction and Payment
- Deduction: At the time of payment (including each installment), the buyer should deduct 1% of the total sale consideration as TDS.
- Deposit: The deducted TDS amount must be deposited with the government within 30 days from the end of the month in which the deduction was made. This is done using Form 26QB, which can be filed online through the TIN-NSDL website.
- TDS Certificate: After depositing the TDS, the buyer should provide the seller with a TDS certificate in Form 16B, which can be downloaded from the TRACES portal. TDS certificate is the proof of TDS deduction by the buyer.
Consequences of Non-Compliance
Non-compliance with TDS provisions can lead to penalties and interest charges.
- Penalty for Non-Deduction: The buyer may be liable to pay an equal amount as a penalty for failing to deduct TDS.
- Interest for Late Payment: Interest at 1% per month is levied for non-deduction and 1.5% per month for non-deposition.
- Late Filing Fee: A penalty of ₹200 per day is charged for late filing of Form 26QB until the failure is rectified.
Special Scenarios
- Purchase from Non-Resident Indians (NRIs): When buying property from an NRI, Section 195 of the Income Tax Act applies. The TDS rates are higher, typically 20% for long-term capital gains, and the buyer must obtain a Tax Deduction Account Number (TAN).
- Exemptions: TDS is not applicable if the property value is less than ₹50 lakh or if the property is agricultural land.
- Reduced Rate: If the seller provides a Nil/Lower TDS Certificate from the Income Tax Department, TDS can be deducted at a reduced rate.
- Proportion of TDS: In case of multiple buyers or sellers, TDS must be deducted in proportion to their ownership.
Conclusion
Understanding and complying with TDS provisions on property transactions is essential for both buyers and sellers to avoid legal issues and penalties. Both buyers and sellers should be well-informed about their responsibilities under the Income Tax Act to ensure a smooth and lawful transfer of property ownership.
Buyers must ensure timely deduction and deposit of TDS, while sellers should verify the TDS deduction and claim it while filing income tax returns.
For smooth property transactions, it is advisable to consult a tax expert to ensure proper compliance with TDS regulations.
Frequently Asked Questions (FAQs)
- What is TDS on property purchases?
TDS is a tax mechanism where the buyer deducts a certain percentage of the property’s sale consideration and remits it to the government. This ensures that the seller’s income from the sale is reported to the tax authorities.
- When is TDS applicable on property transactions?
TDS applies when the sale consideration of an immovable property exceeds ₹50 lakh. The buyer is required to deduct 1% of the total sale consideration as TDS. This is applicable to all properties, including land, residential, and commercial properties, but excludes agricultural land.
- Who is responsible for deducting and depositing TDS?
The buyer of the property is responsible for deducting the TDS from the sale consideration and depositing it with the government. The buyer must also furnish the TDS certificate (Form 16B) to the seller.
- Is a Tax Deduction Account Number (TAN) required for TDS on property purchases?
No, the buyer is not required to obtain a TAN. The buyer can use their Permanent Account Number (PAN) to deduct and deposit TDS. However, both the buyer’s and seller’s PANs are mandatory for the transaction.
- How is TDS calculated if the property is purchased jointly?
In cases of joint ownership, each buyer must deduct TDS according to their respective share in the property. Separate Form 26QB must be filed for each buyer-seller combination. For instance, if there are two buyers and one seller, two forms need to be filed, each reflecting the respective shares.
- What is Form 26QB, and how is it filed?
Form 26QB is an online form used to furnish information regarding TDS on property transactions. The buyer must fill out this form with details of the transaction and pay the TDS within 30 days from the end of the month in which the deduction is made. This can be done through the TIN NSDL website.
- What is Form 16B, and how can it be obtained?
Form 16B is the TDS certificate that the buyer issues to the seller as proof of TDS deduction. After filing Form 26QB and depositing the TDS, the buyer can download Form 16B from the TRACES website.
- Are there any penalties for late deduction or non-payment of TDS?
Yes, failing to deduct or deposit TDS on time can lead to penalties, including interest on the amount not deducted or deposited and late filing fees. It’s crucial to adhere to the timelines to avoid such penalties.
- Is TDS applicable when purchasing property from a Non-Resident Indian (NRI)?
Yes, but the TDS rate differs. When purchasing property from an NRI, the TDS is deducted at 20% of the sale consideration. It’s advisable to consult with a tax professional in such cases due to the complexities involved.
- Are there any exceptions to TDS on property transactions?
Yes, TDS is not applicable if the sale consideration is less than ₹50 lakh or if the property is agricultural land. Additionally, if the seller does not provide their PAN, the TDS rate increases to 20%.
11. TDS on property purchase by husband and wife?
TDS is divided based on their ownership ratio, both husband and wife needs to deduct TDS for their respective share.