When selling property in India, you must navigate several legal and tax-related processes, one of which involves the Tax Deducted at Source (TDS) under Section 194IA of the Income Tax Act.
If you’re selling a property, it’s important to understand this provision to ensure compliance and avoid any legal complications down the road. Let’s break down the key aspects of Section 194IA TDS on the sale of property.
What is TDS?
TDS stands for Tax Deducted at Source. It’s a system where the government takes a certain percentage of tax directly from income or payments before the money reaches the person.
For example, when someone earns a salary or sells property, the person or company paying them automatically deducts a part of that money as tax. This allows the government to collect taxes in small amounts throughout the year instead of waiting until the end of the year when people file their taxes.
What is TDS on Sale of Property?
TDS on the sale of property refers to the tax deducted at source when someone sells property in India. The buyer must deduct a certain percentage of the sale price as tax and pay it directly to the government.
What is Section 194IA TDS on Sale of Property?
Section 194IA of the Income Tax Act, introduced through the Finance Act of 2013, addresses the deduction of Tax Deducted at Source (TDS) on the purchase of immovable property. This section primarily applies to transactions where an Indian resident taxpayer buys immovable property.
Key Points of Section 194IA:
- Applicability: Section 194IA applies when an Indian resident (the transferee) purchases immovable property from another Indian resident (the transferor).
- Threshold Limit: TDS is deductible only if the consideration for the property exceeds Rs. 50 lakhs.
- TDS Deduction: The transferee is responsible for deducting TDS at the rate of 1% of the total sale consideration and remitting it to the government.
Types of Properties Covered:
Section 194IA applies to the purchase of all immovable properties, including:
- Land
- Building
- Apartments
- Commercial Properties
Section 194IB – TDS on Rent Payments
In addition to Section 194IA, Section 194IB of the Income Tax Act relates to TDS on rental payments. This section applies when a person pays rent for certain types of property, including:
- Plant
- Furniture
- Fittings
- Land
- Building (including those used for factory purposes)
- Equipment or Machinery
What are the Requirements Section 194IA TDS on the Sale of Property?
| Requirement | Explanation |
|---|---|
| TDS Deduction by Buyer | The buyer is responsible for deducting TDS, not the seller. |
| Threshold for TDS | TDS is applicable only if the property transaction is worth more than Rs. 50 lakhs. |
| TDS Calculation | TDS is calculated on the full sale amount. For example, if the property costs Rs. 70 lakhs, TDS is calculated on Rs. 70 lakhs, not just the extra Rs. 20 lakhs. |
| TDS on Instalments | If the property is paid in instalments, TDS is deducted on each instalment. |
| Additional Charges Included | Since September 2019, charges like club membership, maintenance fees, parking fees, etc., are also added to the property’s value for TDS calculation. |
| PAN Requirement | Both the buyer and seller must provide their PAN cards for TDS deduction. |
| TDS Rate if PAN is Missing | If the seller’s PAN is not available, the TDS rate increases to 20%. |
| TDS Payment Timeline | TDS must be paid using Form 26QB within 30 days from the end of the month in which it was deducted. |
| Form 16B Issuance | The buyer must obtain Form 16B and provide it to the seller. |
TDS on Property Purchase under Section 194IA
To curb the use of black money in property transactions, the Government of India introduced a provision under Section 194IA of the Income Tax Act, requiring the buyer to deduct Tax Deducted at Source (TDS) when purchasing immovable property.
| Key Point | Details |
|---|---|
| TDS Rate | 1% of the total sale value. |
| Threshold for TDS | Applicable if the property value is Rs. 50 lakhs or more. |
| Scope | Covers commercial, residential properties, and land (excluding agricultural land). |
| Timing of Deduction | Deduct TDS when payment is made or credited to the seller’s account, whichever is earlier. |
How to Pay TDS through Challan 26QB and Obtain Form 16B?
- Make the Payment via Challan 26QB (Online)
Log in to your account on the Income Tax e-filing portal.
Navigate to the ‘e-File’ tab and select ‘e-Pay Tax’ from the dropdown menu. - Start a New Payment
Click on the ‘+ New Payment’ button.
- Choose the TDS on Property Option
Select the option ‘26QB – TDS on Property’ and click ‘Proceed.’
- Enter Buyer’s Details
Verify that the buyer’s details are pre-filled. If necessary, update them and click ‘Continue.’
- Add Seller’s Details
Enter the seller’s PAN, address, and other required details, then click ‘Continue.’
- Add Property Details
Provide details about the property, such as type, address, agreement date, and sale value. The system will automatically calculate the TDS amount. Once done, click ‘Continue.’
- Verify Payment in Form 26AS
Choose the payment mode and complete the payment process. A payment challan will be generated upon successful payment.
- Register on TRACES
If you haven’t registered on TRACES yet, create an account using your PAN and the details from the payment challan.
Once registered, you can access Form 16B (TDS certificate) to issue it to the seller. - Verify Payment in Form 26AS
Wait for at least 7 days after making the payment. Then, check your Form 26AS to confirm the TDS payment. Look under “Details of Tax Deducted at Source on Sale of Immovable Property u/s 194(IA)” to see the transaction details, including the TDS certificate number, PAN, and date of deposit.
- Download Form 16B
Once the TDS payment appears in Form 26AS, log in to TRACES.
Go to the ‘Download’ tab and select “Form-16B (for the buyer).”
Enter the seller’s PAN and the acknowledgment number from the transaction, then click “Proceed.”
Verify the details and click “Submit Request.” - Access the Downloaded Form 16B
After a few hours, check the status of your Form 16B download request under the ‘Requested Downloads’ section.
When the status shows “available,” download the .zip file.
The password for the zip file is the deductor’s date of birth in DDMMYYYY format. Inside, you’ll find the Form 16B as a PDF, which you can print.
Notice for Not Filing Form 26QB
The income tax department receives information from the government office that records property sales and purchases. This data helps the department identify if someone has bought or sold property worth over Rs. 50 lakh.
If the buyer fails to deduct 1% tax from the transaction or does not submit the TDS (Tax Deducted at Source) within the required time, the department will send a notice to the buyer to take action.
Consequences of Non-Filing or Late Filing of Form 26QB
For the Buyer:
- If the buyer fails to file Form 26QB on time, a fee of Rs. 200 per day will be charged under Section 234E until the form is filed.
- The buyer will also be liable for penalties related to late deduction, late payment, and interest on the delayed amounts. The Assessing Officer may also impose additional penalties under Section 271H.
For the Seller:
- If Form 26QB is not filed or filed late, the seller will not be able to claim the TDS credit.
- The buyer must deposit the deducted tax to the government within the specified time, or face consequences as mentioned.
Penalties Applicable on Non-filing of Form 26QB/ Late Filing
| Penalty Type | Calculation |
|---|---|
| Interest on Not Deducting TDS | 1% per month from the date the TDS should have been deducted until the actual deduction is made. |
| Interest on Not Depositing TDS | 1.5% per month from the date the TDS was deducted to the date of payment to the government. |
| Late Filing Fee under Section 234E | Rs. 200 per day for the delay in submitting Form 26QB. The fine continues until the form is filed. This is in addition to the interest. |
Conclusion
Section 194IA ensures that the government collects tax on the sale of property at the source, streamlining the process. Buyers and sellers must understand their respective responsibilities regarding TDS deductions to avoid penalties or delays in the property transaction.
Frequently Asked Questions
TDS is a tax that the buyer deducts directly from the payment to the seller when a property is sold. The buyer is responsible for deducting and paying the tax to the government.
Under Section 194IA, the buyer must deduct the TDS when paying the seller.
The buyer must deduct TDS if the sale price of the property exceeds ₹50 lakh. This applies to transactions involving land, buildings, or any part of a building. If the property costs more than ₹50 lakh, the buyer must deduct TDS at the time of payment.
The TDS rate under Section 194IA is 1% of the total sale price (excluding agricultural land).
The system ensures timely tax payments during property transactions, reducing tax evasion. It simplifies tax collection, allowing the government to track and collect taxes on large property sales.
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