TDS on Property Purchases: Key Considerations for Buyers
May 18th, 2023
One of the transactions in India that is subject to tax deducted at source (TDS) is the purchase and sale of real estate. The Income Tax Code’s Section 194-IA states that TDS on the sale of property is applicable. Buyers and sellers do not have to worry about TDS ramifications at all, if the property value is less than Rs 50 lakh. For real estate transactions greater than or equal to Rs 50 lakh, TDS is imposed.
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Applicability of TDS on Purchase of Property
A buyer must deposit 1% of the transaction cost as TDS on the sale of property under Section 194-IA of the Income-Tax Act if the property’s value is Rs 50 lakh or more. In the event that there is a discrepancy between the stamp duty value and the actual sale value of the property, Section 194-IA does not indicate which amount must be considered for calculating the TDS on the property sale.
It is important to note that property cannot be registered below the circle rates set by the government, which are often used to determine how much stamp duty would be charged on the sale. The property’s market value may be more or less than the amount subject to stamp duty. According to a statement released on February 1, 2022, the buyer will be required to determine TDS on the sale of the property based on the valuation that is higher in such a situation.
Who Deducts TDS from a Real Estate Sale?
The Indian government passed legislation requiring the buyer of a property to withhold tax at source from the price they pay in the sale of their property. This was done in order to reduce the widespread usage of unaccounted money in immovable property transactions. Furthermore, to collect taxes directly from the source of income, the notion of TDS, or tax deducted at source, was created.
The law requires that anybody who is obligated to pay money of a certain kind to another person deduct tax at source and submit it to the government. This basically implies that in property purchases, it would be the buyer’s obligation to deduct the TDS. Based on the Form 26AS or a TDS certificate provided by the buyer, the seller whose income the tax has been deducted at source is entitled to get credit for the amount thus deducted.
The parties to the agreement will be responsible for paying a fine if they fail to fulfil this obligation. In fact, the buyer may face legal repercussions if he fails to deduct the required TDS and file it with the authorities.
TDS Rates on Purchase of Property
TDS must be deducted when any property is purchased or sold. When giving the selling money, the buyer would subtract a certain amount called as TDS and give the seller the remaining money. The amount that is deducted through the buyer must be remitted to the income tax office.
The deduction is determined by the seller’s place of residence. The amount of TDS to be deducted will be 1% of the sale price if the seller is an Indian resident. If the seller is an NRI, the amount of TDS to be deducted will depend on the amount of money received by the seller.
The residential status of the seller should be considered for computing the TDS amount to be deducted, but the residential status of the buyer shall not be acknowledged. TDS is applicable to any property whose worth is Rs. 50 lakh or more.
Exemptions From TDS on Purchase of Property
In India, the purchase of real estate is subject to the taxation laws of the country. The Tax Deducted at Source (TDS) is applicable to all such transactions. However, there are certain exemptions from the TDS on the purchase of property in India.
The buyers of the property are exempt from TDS if the purchase of the property is for the purpose of construction of a residential house, and the amount paid for the purchase is less than Rs. 50 Lakhs. The buyer must also provide a Self-Declaration Affidavit to the seller stating that the property is being purchased for the purpose of construction of a residential house.
The buyers of the property are exempt from TDS if the property is being purchased from a non-resident not being a company. In this case, the buyer must furnish Form 15CB to the seller. Apart from other instances, Form 15CB is issued by an accountant or chartered accountant to certify that the income is exempt from TDS.
The buyers of the property are also exempt from TDS if the property is being purchased from a foreign company. In this case, the buyer must furnish Form 15CA to the seller. Form 15CA is a document that is issued by an accountant or chartered accountant certifying that the income is exempt from TDS.
The buyers of the property are exempt from TDS if the property is being purchased from a religious or charitable trust. In this case, the buyer must furnish Form 16A to the seller. Form 16A is a document that is issued by an accountant or chartered accountant certifying that the income is exempt from TDS.
Overall, these are some exemptions from the TDS on the purchase of property in India. However, it is important to note that the buyers of the property must always furnish the relevant documents to the seller in order to avail these exemptions.
List of exemptions from TDS on purchase of property in India
- Purchase of a residential house property for a consideration less than Rs. 50 lakhs with the amount of stamp duty involved less than Rs.50,000
- Purchase of a residential house property for a consideration greater than or equal to Rs. 50 lakhs but not exceeding Rs.1 crore and the amount of stamp duty involved is less than Rs.50,000.
- Purchase of a residential house property by a non-resident Indian (NRI) from another NRI as a gift, inheritance or an ancestral property.
- Purchase of a residential house property from a relative who is a resident Indian, provided that the consideration is less than Rs. 50 lakhs and the stamp duty involved is less than Rs.50,000.
- Purchase of a residential house property from the Central or State Government, or an authority constituted by either of them.
- Purchase of a residential house property from a housing finance company or other approved institution.
- Purchase of a residential house property from a developer in accordance with a housing scheme of the Central or State Government or a local authority.
In order to claim exemptions from TDS on purchase of property in India, an individual has to submit Form 15G or Form 15H to the concerned bank or financial institution. The forms should be filled as per the instructions mentioned and signed by the individual. The individual should also provide relevant documents such as PAN card, Aadhaar card and a copy of the property purchase agreement as proof of the purchase. The forms can be submitted either online or offline depending on the availability of the facility. Once the forms are successfully submitted and the documents are verified, the bank or financial institution will process the request and provide the exemption from TDS on purchase of property in India.
TDS Payment on Purchase of Property
To pay TDS on the Sale of Land or Property, follow these steps:
- Go to the official government website .
- Click on Proceed after finding the ‘TDS on Property (Form 26QB)’.
- You need to enter all the necessary information into the window that displays. As the appropriate challan, pick “TDS on Sale of Property”.
- You will receive a confirmation of your data after completing out the form. This document can be kept for acknowledgment in the future.
- Click Submit to the Bank to pay using safe net banking if you want to do so online.
Due date for submitting TDS
The buyer must submit the TDS (tax deducted at source) with the government by the seventh day of the next month after it has been deducted. This implies that by April 7, the government must receive payment of the TDS deducted in the month of March.
Consequences of Non-Payment or Delayed Payment of TDS on Purchase of Property
The buyer is required by law to deduct the appropriate TDS out of the transaction value and properly submit it to the government . Since a TAN is not required in their situation, buyers are free to utilise their PAN information in the forms. Buyers who fail to pay the TDS within the allotted time may be subject to interest charges or a harsh jail term of up to seven years. Please keep in mind that even if the seller could be required to pay, the one who would actually be penalised is the buyer.
If the TDS has not been deducted from the price of the property, the buyer will be required to pay an interest at the rate of 1% per month on the amount that has not been deducted. If the tax withholding duty has been met but the tax itself will not be paid, there will be a monthly interest charge of 1.5% of the outstanding sum.
Additionally, income tax officials may levy a penalty of up to one lakh rupees for the late deposit of tax deducted at the source on the property. This penalty can be applied to any tax deducted at the source on the property.
Last but not least, there is a fee of Rs. 200 per day if Form 26QB is not filed and the TDS Return is filed after the deadline. However, the fine shall not exceed the amount of tax withholding that should have been deducted had this form been filed.
How to Calculate TDS on Purchase of Property
Step 1: Determine the Property Value
Identifying the property’s value is the first step. This is the sum that the buyer and seller have agreed upon. The TDS should be computed using this value.
Step 2: Calculate the TDS Amount
The TDS on purchase of a property is calculated at 1% of the property value. If the property value is Rs 75 lakh, then the TDS amount will be Rs. 70,000 which is 1% of Rs 75 lakh.
Step 3: Verify the PAN Information
You must verify the seller’s PAN information before paying them. Only if the seller holds a PAN is it required to deduct TDS from the acquisition of real estate. TDS is deducted at a rate of 20% if the vendor does not have a PAN.
Step 4: Deposit the TDS
Within 30 days at the end of the month in which the TDS was deducted, the deducted TDS amount must be remitted with the government. Through the website of the government, you may deposit the TDS amount online.
Step 5: Obtain a TDS certificate
You must ask the government for a TDS certificate once the TDS has been submitted. The deposit of the TDS shall be attested to by this document. This certificate is available for download on the government’s website.
Using a TDS Calculator for Ease
Alternatively, you can use a TDS calculator since it might be difficult to calculate TDS on a property acquisition, especially if you are unfamiliar with the procedure. Using the property valuation and the seller’s PAN information, a property TDS calculator is an online application that assists you in calculating the TDS on a real estate acquisition.
It’s easy to use a property TDS calculator. Simply enter the property’s worth and the seller’s PAN information, and the calculator will tell you how much TDS has to be subtracted. You will save time and work by not having to calculate the TDS manually.
TAN Number, TDS Payment, and Returns from NRIs:
When purchasing a home from an NRI, there are a number of compliances to choose from. The buyer must first have a TAN no in order to deduct TDS. TAN No is not required if the property is purchased from a resident Indian; nevertheless, it is required if the property is purchased from a non-resident Indian.
Only the buyer is required to pose this TAN no while seller does not. TAN no directed towards the Tax deduction and collection account no. The buyer must apply for that before the TDS deduction when he has the TAN no. The same is crucial to understand in the event that two purchasers need to apply for TAN numbers.
The TDS that the buyer has deducted will be submitted at the Income Tax Department seven days after the end of the month. For example, if TDS is withheld in the month of June, TDS must be submitted with the income-tax department on or before July 7th.
TDS on Purchase of Immovable Property
On the sale of an immovable property, 1% TDS will be required under Section 194-IA of the Income Tax Act. On the acquisition, rental, or transfer of such property, TDS will also be deducted. To avoid penalties, this tax must be paid by a certain date.
Any transferee must pay a resident transferor or buyer a specific sum of money when they transfer any immovable property, except agricultural land. The transferee will have the option of paying with cash, a cheque, a draught or any other form of payment. The transferee will have the option to withhold tax at source, with a 1% TDS deduction from the total amount.
TDS on Sale of Immovable Property
The Income Tax Act has a provision for TDS on the sale of immoveable property under section 194-IA. According to the tax regulations in this area, TDS will be subtracted at a rate of 1% from the sale price of real estate. If a transferor does not supply a valid PAN number, the rate might increase to 20%. On the sum paid to a seller or transferor for transferring immovable property to the buyer/transferee, the transferee is liable for deducting tax at source. In the aforementioned provision, “immovable property” refers to any building, any piece of land (other than agricultural land), and any construction.
TDS on Immovable Property for NRIs
Section 195 of the Indian Income Tax Act of 1961 also makes provisions for TDS on moveable property for NRIs. According to this clause, any transferee or buyer making a payment to a non-resident Indian is required to deduct tax at source at the applicable rates. Non-resident Indians who sell immovable property in India would have pay income tax on their capital gains.
Interest on Late Payment Towards TDS on Immovable Property
To avoid incurring interest on a late payment, you must pay the tax that was deducted at source by a certain date. The following dates require payment of the tax withheld by the payer:
TDS collected in March must be paid to the government by April 30th at the latest.
If TDS is withheld in the months of April through February, the payment must reach the government no later than 7 days after the end of the withheld month. If you don’t pay your TDS by the dates specified above, you’ll have to pay interest on the amount. You’ll be billed:
For each month or portion of a month that the deduction is delayed, 1% will be charged as interest.
After tax deduction, a 1.5% fee will be applied for each full or partial month that the payment is late.
Documents Required for Immovable Property TDS Payment
The following paperwork needs to be provided together with the TDS form by the property buyer.
- PAN numbers for both the buyer (transferee) and the seller (transferor).
- Category of the transferee’s PAN.
- Identities of the buyer and vendor in full.
- The transferor and transferor’s PAN category.
- Complete addresses for both the transferor and the recipient.
- The acquired property’s address is complete and accurate.
- Information about the payment or credit.
So, under section 194-IA of the Indian Income Tax Act, anybody paying a resident transferor or seller for the transfer of an immovable property may deduct tax at source equal to 1% of the transferor’s payment. This new provision, 194 IA, has been added to the Income Tax Act of 1961 in accordance with a recommendation made in the 2013 Finance Bill. This immovable property tax benefit is only valid if the property worth is Rs. 50 lakh or greater.
Things to Remember Regarding TDS
Buyers are required to withhold and pay TDS to the government on real estate valued equal to or more than Rs 50 lakhs. The responsibility for withholding and filing the TDS lies with the purchasers, not the provider.
Any misuse in this regard will result in legal repercussions for the buyer, who will be held accountable. The purchasers must fill out Form 26QB in order to credit the TDS. If there are multiple parties involved in the transaction, separate paperwork must be filled out for each buyer or seller.
Every person and organisation has a big duty to pay taxes. It is a responsibility that must be met in order to keep the nation’s economy stable and growing. Paying TDS (Tax Deducted at Source) guarantees that the government may collect taxes from the source directly, making it a crucial component of this responsibility. This makes it easier to ensure that taxes are paid from the start and enables the government to raise more money. This is particularly significant in emerging nations when the government need greater funding to provide basic infrastructure and services. Paying TDS also guarantees that everyone pays their fair amount of taxes, which improves the efficiency and transparency of the tax collecting process.
In conclusion, paying TDS is a crucial obligation for any person or business, as it enables the government to collect taxes directly from the source, boosts tax revenues, and improves the efficiency and transparency of the tax collecting process. To sustain the nation’s economic stability and prosperity, it is crucial to make sure TDS is paid on time and appropriately.
1. How to pay TDS for property above 50 lakhs?
A buyer is required to withhold and deposit 1% of the transaction cost as TDS on the sale of property under Section 194-IA of the Income Tax Act, if the property's worth is Rs 50 lakh or more.
2. Who pays TDS on property sale?
When a property is sold, the seller is required to pay the TDS, but the buyer is required to take it out of the sale price and submit it to the government.
3. When should you pay TDS on property purchase?
The buyer must submit the TDS with the government by the seventh day of the next month after deducting it.
4. Is there a surcharge on TDS on the property sale?
In cases when the seller's taxable income is equal to or more than Rs. 50 lakhs, there is a surcharge on TDS on the sale of real estate. The seller's taxable income affects the surcharge rate.
5. Are purchasers required to have a TAN number mandatorily?
No, purchasers are not required to have a TAN number when purchasing real estate.
6. What happens if TDS is not deducted on property purchase?
If no tax was deducted, you must pay interest at the rate of 1% per month, and if tax was deducted but not paid to the government, you must pay interest at the rate of 1.5% per month. This is as per Section 201. Depending on the total amount of tax owed, Section 234E's late filing penalty is Rs. 200 per day.
7. Is TDS paid on property refundable?
TDS on real estate is, in fact, refundable. The buyer must subtract TDS from the property at the time of sale and deposit it with the government. However, the seller is permitted to use the same or get a TDS refund by submitting his ITR.
8. Does TDS on property include stamp duty?
If the property's stamp duty value exceeds the sale price, TDS must be subtracted from that amount.
9. How do I pay TDS for flat purchase?
Following a successful transaction disclosure, the deductor may: Use the e-tax payment option to make the TDS payment right away online. Later on, you may make the payment through the e-tax payment option or by going to one of the approved banks.
10. Which Challan is used for TDS on sale of property?
The TDS certificate (Form 16B), which the deductor (the buyer of the property) must provide to the deductee (the seller of the property), relates to the taxes deducted and put into the government account.
11. What is the new rule of TDS on purchase?
Starting from July 1, 2021, the ITA's Section 194Q has been in effect. Therefore, the TDS must only be subtracted from transactions made after July 1, 2021. However, starting of April 1, 2021, the threshold purchase limit of Rs. 50 lakh must be taken into consideration
12. Who is eligible for TDS refund?
You may be entitled to a TDS refund if your financial declarations at the start of the year were lower than your actual investment proofs at the conclusion of the year.
13. How do I get a refund from TDS property?
The buyer must subtract TDS from the property at the time of sale and deposit it with the government. However, the seller is permitted to use the same or get a TDS refund by submitting his ITR