TDS on Purchase of Property under Income Tax Act, 1961 By CS Annu Sharma

Introduction of TDS on Purchase of Property in India

TDS or tax deducted at source refers to the process of collecting income tax at source by the government of India. It is a kind of spot deduction of tax from the original source of income. TDS is deducted as per the Indian Income Tax Act, 1961 and controlled by the Central Board for Direct Taxes and it is a very important part of the Indian Revenue Service Department.

TDS is an indirect way of collecting income tax and imposed on incomes received from several financial products and business transactions.

For examples, interest income received from fixed deposits, incentives and commissions, dividends, payment received for various services, sale, rent and purchase of immovable property and awards earned as money – these are some of the sources of income where TDS is applicable.

The deduction of TDS may vary from 1% to 30% based on your source of earnings.

Provisions under Income Tax Act, 1961

Finance Act, 2013 has introduced Sec 194-IA which provides for deduction of tax at source in case of payment of sale consideration of immovable property (other than rural agricultural land) to a resident transferor w.e.f 1st June 2013.

It is the responsibility of the buyer to deduct TDS if the transaction value exceeds Rs. 50 lakh. The buyer is required to deduct TDS @ 1% on the total consideration and deposit the same in the Government treasury.

Properties that are covered Sec 194-IA covers residential property, commercial property whether built up or under construction, as well as land except for agricultural land. When TDS to be deducted Sometimes total sale price, which exceeds Rs. 50 lakh in aggregate, may be payable in instalments. The TDS, in that case, must be deducted from each instalment no matter how small the instalment is.

Due date of deposit of TDS & filing of Return The TDS, deducted each time while paying the instalment, is to be deposited with the Income-tax authority by way of return cum challan (Form 26QB) within 30 days of the month, following the month in which payment is made. Refer CBDT notification no. 30/2016 dated April 29, 2016.

Example: If a taxpayer has made payment of sale consideration in the month of February, then the corresponding TDS should be deposited on or before (thirty days) 30th March.

What is Form 26QB?

The online form available on the TIN website for furnishing information regarding TDS on the property is termed as Form 26QB Details to be furnished in Form 26QB Generally, every person who is responsible for deducting TDS has to obtain a TAN (tax deduction account number). However, in the case of TDS on immovable property, the buyer does not have to obtain the TAN. The buyer has to provide details like name, address, PAN, mobile number and email id of the seller as well as the buyer, in Form 26QB. The complete address of the property, along with the date of the agreement, the total value of consideration, date of payment, etc. also need to be provided. Buyers should also remember to issue Form 16B. It is generated from TRACES and the seller may not be able to take the tax credit for TDS deducted in case of non-filing or late filing of Form 26QB.

What is Form 16B?

 Form 16B is the TDS certificate to be issued by the deductor (Buyer of property) to the deductee (Seller of property) in respect of the taxes deducted and deposited into the Government Account. The transaction with Joint Parties Online statement cum challan Form/ Form 26QB is to be filled in by each buyer for unique buyer-seller combination for respective share. E.g. in the case of one buyer and two sellers, two forms have to be filled in and for two buyers and two sellers, four forms have to be filled in for respective property shares.

Penalty/Interest for non-compliance?

Failing to comply with the provision of Sec 194-IA will attract late filing interest as well as a penalty under Section 271H of Income Tax Act, 1961 up to Rs 1 lakh (Minimum Rs.10,000/-). The interest payable under Section 201(A) is 1% per month if the tax wasn’t deducted and U/s 201(IA) @1.5% in case this was done but not paid. Purchaser/Deductor will be liable to pay late fee U/s 234E @Rs.200 per day till the failure to pay TDS continues.

However, the penalty should not exceed the amount of TDS for which statement was required to be filed. If a person fails to deposit TDS deducted as required by or under the provisions of Chapter XVII-B, shall be punishable U/s 276B, with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

Points to note:

Dealings in agricultural land are excluded from the requirements of TDS provisions. If the consideration is being paid in instalments, TDS must also be deducted on each instalment. If the total consideration exceeds Rs.50 lakhs, TDS to be deducted @1% on entire amount and not the amount in excess of Rs.50 lakhs. If PAN is not provided by the seller, TDS @ 20% is deductible

Documents Required for making TDS Payment on Immovable Property:

A property buyer has to furnish the following documents with the TDS form:

  1. PAN number of both of transferee (buyer) and transferor (seller).
  2. Category of PAN of the transferee.
  3. Full names of the buyer and seller.
  4. Category of PAN of the transferor and transferor.
  5. Complete address of the transferee and transferor.
  6. Complete and correct address of the property purchased.
  7. Details of the amount paid or credited.
Thus, the section 194-IA of the Indian Income Tax Act allows any individual making payment to a resident transferor or seller for transferring an immovable property to deduct tax at source at 1% of the payment to be made to the transferor. As per the suggestion made in the Finance Bill 2013, this new section - 194 IA has been included in the Income Tax Act, 1961. This deduction of tax on immovable properties is applicable only if the property value is Rs. 50 lakh or more than that.
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