What is tax deducted at source (TDS) on property purchase?

Answer By law4u team

What is Tax Deducted at Source (TDS) on Property Purchase in India? Tax Deducted at Source (TDS) is a mechanism introduced by the Government of India to collect income tax in a more efficient manner. Under this system, a certain percentage of tax is deducted at the source of income and remitted directly to the government by the person making the payment. For property transactions, the concept of TDS is applicable when an individual or entity is involved in purchasing property. TDS on property transactions, particularly for the purchase of immovable property, was introduced by the Finance Act, 2013, under Section 194-IA of the Income Tax Act, 1961. This provision applies when the sale value of the property exceeds a certain threshold limit, and the buyer is required to deduct tax at source while making the payment to the seller. When is TDS Applicable on Property Purchase? TDS on property purchase is applicable under the following conditions: 1. Property Value: The TDS provision applies if the consideration amount (the sale value of the property) exceeds ₹50 lakh. In such cases, the buyer must deduct tax at the time of payment to the seller. 2. Type of Property: The TDS provisions are applicable for the purchase of immovable property such as residential flats, houses, land, etc. It does not apply to commercial property transactions or to agricultural land unless it falls within certain specific conditions. 3. Who is liable to deduct TDS? The buyer of the property is responsible for deducting TDS, not the seller. This means the person purchasing the property has to deduct and remit the tax to the government. The buyer must ensure that TDS is deducted and deposited with the Income Tax Department within the prescribed timelines to avoid penalties. 4. Whether the Buyer is an Individual or a Company: The TDS rules apply to both individuals and companies purchasing property, provided the property value exceeds ₹50 lakh. The buyer does not need to be a taxpayer or a business entity; any person purchasing property above the prescribed threshold must comply with these TDS provisions. Rate of TDS on Property Purchase The rate at which TDS is deducted for property purchases is defined under Section 194-IA of the Income Tax Act. The current rate of TDS is: 1% of the sale value: The buyer is required to deduct 1% of the total sale consideration (excluding GST and other taxes) when the transaction involves a property valued above ₹50 lakh. For example, if the purchase price of the property is ₹1 crore (₹1,00,00,000), the TDS to be deducted would be: TDS = 1% of ₹1,00,00,000 = ₹1,00,000. Note: TDS is calculated based on the sale consideration, which is the agreed purchase price between the buyer and the seller. GST (Goods and Services Tax) is not included while calculating TDS under Section 194-IA. If GST is applicable to the property transaction, it will be treated separately from the sale consideration for TDS purposes. How to Deduct and Deposit TDS on Property Purchase 1. Deduction of TDS: The buyer is required to deduct TDS at the time of payment or at the time of giving any advance towards the property transaction. This means that the TDS is deducted from the total purchase price, including any advances paid, at the time of making the payment. 2. Payment to the Government: After deducting the TDS, the buyer must deposit it with the Income Tax Department. The TDS must be deposited through the Challan-cum-Statement (ITNS 281), which can be done online on the official NSDL TIN website or through designated branches of banks authorized to collect taxes. 3. Time Limit for Payment: The TDS should be paid to the government within 30 days from the end of the month in which the deduction was made. For instance, if TDS is deducted in October, the amount must be paid to the government by November 30th. 4. Filing TDS Return: The buyer must also file a TDS return in Form 26QB within 30 days from the date of payment. This return provides a record of the TDS deducted, details of the buyer and seller, and other important transaction information. Form 26QB can be filed online via the e-filing portal of the Income Tax Department. 5. TDS Certificate: After depositing the TDS, the buyer must provide the seller with a TDS certificate in Form 16B. The seller can use the TDS certificate to claim the deducted tax in their tax returns. The certificate must be provided within 15 days from the due date of filing the TDS return. Exemptions from TDS on Property Purchase 1. Transaction Below ₹50 Lakh: TDS is not applicable if the sale value of the property is below ₹50 lakh. However, if the property is valued above ₹50 lakh, TDS will be applicable irrespective of the buyer’s residential status. 2. Non-Resident Seller: If the seller is a non-resident, the provisions for TDS will still apply to the buyer, but the rate of TDS may differ. In such cases, the buyer must check the double taxation avoidance agreement (DTAA) between India and the seller's country to ensure correct withholding tax. 3. Exemption for Certain Types of Property: TDS is not applicable to agricultural land, as agricultural land is generally exempt from capital gains tax under certain circumstances. Property held in the nature of a gift or inheritance may also be exempt from TDS. Consequences of Non-Compliance with TDS Rules Failure to comply with TDS regulations on property transactions can lead to penalties and interest charges. If the buyer does not deduct or deposit TDS correctly, they could face the following consequences: 1. Interest and Penalties: The buyer will be charged interest on the late payment of TDS at 1% per month under Section 201 of the Income Tax Act. A penalty may also be levied for non-compliance with the TDS filing and payment process. 2. Seller’s Tax Liability: If the buyer fails to deduct TDS, the seller may face difficulty claiming the amount in their income tax return, potentially leading to tax-related complications. 3. Loss of Tax Credit for Seller: If the buyer does not deduct TDS and provide a TDS certificate (Form 16B), the seller will not receive credit for the TDS amount, leading to the possibility of paying the same tax twice. Conclusion TDS on property purchases is a significant legal obligation for the buyer under Section 194-IA of the Income Tax Act. It ensures that the government receives a steady flow of revenue from real estate transactions and helps in reducing tax evasion. Buyers should ensure they comply with the provisions of TDS on property purchase, correctly deduct the tax, and submit the relevant forms and payments to avoid penalties.

Answer By Anik

Dear client, TDS (Tax Deducted at Source) put in simple words is the tax deducted right at the source of income. As part of the Indian Revenue Service Department, it is the Central Board for Direct Taxes who is in charge of TDS under the Income Tax Act of 1961. In simple words it is a method of indirect tax collection imposed on revenue that is generated by various business transactions and financial products. For instance TDS is levied on all interest income derived from incentives, commissions, fixed deposits, dividends and so on. It also applies to payments received from the rental, sale, or purchase of the real estate. In general TDS deductions may range from 1% to 30% depending on the source of earnings. TDS on the Property Purchase It is important to note that the power to deduct TDS on a property purchase lies with the buyer and not the seller. According to Section 194IA of the IT Act, the buyer must deduct 1% of the sale amount for a property costing above ₹50 Lakh. The deduction applies to all properties, land, residential, and commercial. However, it should be duly noted that agricultural land does not fall within this category. It is also important to note that the TDS for NRIs on property purchases is different because the government deducts their TDS and capital gains. I hope this answer was helpful. For any further queries please do not hesitate to contact us.

Answer By Ayantika Mondal

Dear client, The answer to your question is that, Tax Deducted at Source (TDS) on property purchase is a statutory obligation under the provision of Income Tax Act, 1961 particularly in Section 194 - IA, which is applicable when a person purchases any immovable property, other than agricultural land. Where the sale consideration is ₹50 lakh or more, the buyer is required to deduct TDS at the rate of 1% of the sale consideration at the time of credit or payment, whichever is earlier, and deposit the same with the Income Tax Department. The deducted TDS must be deposited through Form 26QB within 30 days from the end of the month in which the deduction is made, and the buyer must issue Form 16B which is TDS certificate to the seller. Notably, the buyer is not required to obtain a TAN for this purpose. In effect, TDS on property purchase ensures tax compliance and reporting of high-value real estate transactions, and failure to deduct or deposit TDS may attract interest, penalties, and disallowance consequences under the Income Tax Act. I hope this answer was helpful. For further queries, please do not hesitate to contact us. Thank you.