TDS on buying property

What is TDS on buying a property?

Overview of TDS on buying a property is given below,  Buyer should deduct TDS at the time of payment to the seller. Note : the buyer of the property needs to deduct the TDS BEFORE MAKING THE PAYMENT to the seller.

  • This rule is effective from June 2013, if any property is purchased before 2013 and any payment for that particular property is made                                                                              after June, 2013 TDS should be deducted.
  • It comes under the  Sec 194 IA, the Income Tax Act 1961.
  • If the property sale price exceeds Rs 50 Lakhs(agricultural land is exempted from deduction of TDS) then the buyer has to deduct TDS at 1% of the total sale consideration.
  • If PAN of the seller is not available TDS will be deducted at 20% by the buyer.
  • If the payment is made in installments, then TDS needs to be deducted at the time of making each payment and it has to be deposited with the tax department.
  • No surcharge and education cess is applicable while deducting tax on sale of property.
  • TDS on Property is to be done online . The tax should be deposited through challan-cum-statement using Form No.26QB.  The deducted amount can be deposited using ITNS-280 under the minor head-800.
  • In case of multiple sellers, Form 26QB needs to be filed for each seller separately. Similarly, in case of multiple buyers, each needs to issue Form 26QB separately.

 What are TDS implications if one buys property from Non Resident Indian (NRI)?

  • If property is bought from Non-Resident Indian (NRI) then section 194-IA will not be applicable but section 195 will come into action.
  • For NRI the limit of Rs 50 lakh is not applicable i.e even if the property value is less than 50 lakh say 20 lakh tax has to be paid.
  • If property is bought from NRI, TDS is required to be deducted at the rate of 20%
  • Education Cess also has to charges on the sale amount.
  • Surcharge at the rate of 10% will be applicable if amount paid exceeds Rs 1 crore.

What is the due date of paying TDS deducted by buyer?

TDS is to be paid by the 7th of the next month in which the payment is made to the seller. For example If the payment is made in April, due date for paying TDS will be May 7th.

What about Seller of the property?

Form No 16B (TDS Certificate) will be issued by the buyer/deductor to the seller within fifteen days from the due date of depositing tax. This can be downloaded from the TRACES website.

  • The payment of TDS is reflected on the seller’s Form 26AS under the head Part F within 7 days.
  • Seller may not be able to take credit of TDS deducted in case of Non filing or Late filing of Form 26QB.
  • Capital gains made from the sale of property along with the TDS information present in the Form 26AS have to be clearly shown in the seller’s income tax return.
  • The amount deducted as TDS is allowed to be adjusted against the final tax liability.
  • If the seller made a loss on the sale of the property, the seller can claim a refund of the 1% TDS in his income tax return.

There may be some leniency if the seller has already paid capital gains tax or claimed capital gains exemption (on the sale of property). So, if the seller has already paid the taxes, the buyer can submit Form 26A certificate from a chartered accountant and request that penalty under Section 234E should not be levied. Though this will save you from the late filing fee, the interest under Section 201 will still apply . (If you have faced the situation please share)

Examples of How much TDS should be deducted on buying a property

Buyer of the property has to deduct TDS at 1% of the total sale consideration.

  • A,  has purchased a property on 24th April 2016 of Rs. 60 Lakhs . He has to deduct Rs. 60,000 as TDS on making payment to the seller i.e he will pay Rs. 5940000 to the seller .Rs. 60000 will be deposited with the tax department using Form 26QB before 7th May, 2016. If the seller doesn’t have PAN, Rs. 1200000(20%) will be deducted as TDS.
  • If the amount of property you have purchased is Rs 70 Lakhs, then you don’t have to pay tax only on Rs 20 lakhs(70L – 50L) but on the entire amount of sale consideration i.e. Rs 70 lakhs. the TDS would work out to be Rs 70,000
  • B,  had purchased a property on 24th April, 2013 worth Rs. 60 Lakhs. But as it was an under-construction property and one of his installments of Rs. 10 Lakhs were to be paid in 2016. The, the amount that was paid before 1st June 2013 is free from deduction of TDS. But the balance amount of Rs.10 Lakhs payable in 2016 is eligible for TDS. Any amount paid after 2013 is eligible for TDS deduction.
  • C, bought property worth 1.5 Cr in Oct, 2010 and his amount due on or after June 01, 2013 is just 40 lakhs i.e. less than 50 lacs. Yes, even if amount due is only 40 Lacs which is less than 50 lacs on or after June 01, 2013 but since total property value is more than 50 lacs i.e. 1.5 Cr, the buyer is liable to deduct TDS on property sale and deposit with Govt. TDS will be deducted only on 40 Lacs instead of 1.5 Cr i.e. only on the amount payable on or after June 01, 2013.
  • D signed sale agreement on May 4, 2013 . If the agreement is signed before June 01, 2013 but either full payment or even part payment is due or made on or after June 01, 2013 than also she need to deduct TDS on property sale & deposit with Govt. This applies to under construction property also, on the payment/amount due on or after June 01, 2013. Please note thatTDS is applicable only on amount due/payable on or after June 01, 2013 but not on the amount already paid before June 01, 2013.

 

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