All About TDS on Property Purchase in India

Tax rules in India are constantly changing, and citizens are needed to follow them. But are you aware of the amount of TDS when buying a property in India?

Buying a new property is a dream come true for most of us, and the experience of owning a house to call your own is unparalleled. Have you thought of a property that you would like to buy? Have you already applied for a favourable housing loan?

While most buyers are familiar with the tax obligations associated with selling a property, few know the tax on purchasing a property. Since investing in property is quite a decision, you need to understand these responsibilities in advance to have a smooth experience.

The real estate sector is the most recognised in India and is estimated to grow to 65,000 crores from 12,000 crores in 2019. Imagine buying and selling real estate transactions will grow at a fast pace. In addition, the 2022 budget was focused on capital investment, which means that the government is also investing in infrastructure development.

Since the purchase and sale of real estate is a very common transaction, the tax impact on real estate is questioned in the minds of first-time sellers/buyers.

What is TDS?

TDS stands for Tax Deducted at Source. The government has introduced this concept to collect tax at the source itself. In this concept, the person making any payment to the party should make the payment after deducting the specified amount as tax and remit it to the government within the specified period.

TDS rate varies for all types of transactions. If you are a salaried individual, you might have noticed that your employer deducts a certain percentage of your salary into your TDS account and pays you the remaining amount. It is usually your take-home pay, and the employer will remit the withheld amount to the government on your behalf.

In the same way, the amount you pay to the developer when you buy the property is income for him, and this income is subject to income tax. So, like the employer in the above example, you have to deduct TDS from the payment to the builder.

For example, Mr Vivek, a buyer, is purchasing a property from XYZ Builders. So just like the TDS deducted from your salary or payment by the employer or payer, Mr Vivek has to deduct 1% from the payment (made to the builder) and pay it to the income tax department on behalf of XYZ builders. In this case, the builder will receive this 1% in the next assessment year after fulfilling his tax obligations.

When do you need to deduct TDS?

According to Section 194-IA of the Income Tax Act, if the property price is more than Rs. Fifty lakhs, the buyer has to deduct 1% TDS on the purchase of the property (tax deducted at source). These properties include commercial properties, residential properties and land.

You have to deduct TDS on property purchases either while executing the transfer deed or when paying the required advance before making the transfer.

Further, you pay TDS to the central government within 30 days from the end of the month in which the tax gets deducted.

You do not have to pay TDS during the transaction on buying any immovable property whose contract value is less than 50 Lakhs.

Who is liable to pay TDS on property purchases in India?

As in the above example, Mr Vivek, the buyer, is liable to pay TDS. It is his statutory duty to pay TDS on the purchase of the property, and he cannot refuse it. A penalty may get imposed on the buyer if he fails to pay TDS on time.

To whom does the buyer pay TDS?

The buyer does not pay TDS directly to the builder or owner while purchasing the property but needs to deposit it in the exchequer.

If you are dealing with a builder or developer, they usually collect a check from you for a specific amount of TDS, and their representative can pay it so that there are no mistakes on your part while paying TDS.

Provisions under the Income-tax Act, 1961

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

The purchaser is responsible for deducting TDS if the transaction value exceeds Rs. 50 lakhs. The buyer must deduct TDS @ 1% from the total consideration and deposit the same in the exchequer.

Properties covered by Sec 194-IA include residential properties, commercial properties, whether built or under construction and also land other than agricultural land.

Sometimes the total sale price exceeds Rs. 50 million in total. In such a case, TDS has to be deducted from each instalment, irrespective of how small the instalment is.

The TDS deposit due and TDS return filing, deducted each time the instalment gets paid, must be deposited with the Income Tax Office by way of return cum challan (Form 26QB) within 30 days of the month following the month in which the payment gets made.

See CBDT Notification No. 30/2016 dated 29th April 2016. Example: If a taxpayer has paid a sale consideration in February, the corresponding TDS should get deposited before 30th March (30 days).

How to pay TDS online?

You must get a Tax Deduction Account Number (TAN) to deduct TDS on property purchases. However, you do not require a TAN in the case of immovable property. For payment of TDS, form-cum-challan number (26QB) should be filled. Below are the steps to pay TDS online-

• Visit the NSDL TIN website.
• Select the "TDS on Sale of Property" option.
• Next, click "Online Form for Furnishing TDS on Real Estate".
• Select the appropriate 'TDS on Sale of Property form.
• Fill in the required details of the buyer and the seller, including property details, Pan card, personal details and tax deposit details.
• Confirm your submission and save the displayed number for future reference.
• Make the required payment via internet banking.

Fill in the details in the form carefully to avoid mistakes, as you cannot correct errors after submitting the form.

TDS on purchase of property

Suppose you are paying Rs. 50 crore or more for immovable property (excluding rural agricultural land). Here you have to deduct 1% tax from the amount paid to the seller. The Finance Act, 2013 introduced this new provision under Section 194IA of the Income Tax Act. Here, property means land. So it is TDS on the purchase of land.

TDS on property purchase from NRI

On buying a property from an NRI, you have to deduct TDS at 20%. TDS of 30% will be applicable if the property is sold within two years of acquisition.

TDS on leased property

Individuals or HUFs paying rent are required to deduct tax at the source, and individuals and HUFs subject to tax scrutiny are in the same boat.

How much TDS is payable on property purchases in India?

The TDS on the property purchase in India is 1% or 0.75% and is deducted from the sale consideration (depending payment/credit' date to the seller's account). The consideration is the number of costs stated in the purchase contract.

If you are paying anything else as additional charges, such as clubhouse, maintenance, infrastructure, etc., these charges are usually not part of the contract value. So be cautious while estimating the TDS amount.

What is the penalty/interest for non-compliance?

Failure to comply with the provisions of Sec 194-IA will result in late filing interest and a penalty under Section 271H of the Income Tax Act, 1961 up to Rs 1 lakh (minimum Rs 10,000/-).

Interest payable under section 201(A) is 1% per month if tax has not been deducted, and U/s 201(IA) @1.5% if so has been done but not paid.

The purchaser/Deductor will be liable to pay a late fee of E234 @ Rs.200 per day till non-payment of TDS continues. However, the penalty should not go beyond the TDS amount for which the declaration was required to get filed.

If a person fails to deposit TDS deducted under the provisions of Chapter XVII-B or Chapter XVII-B, he shall be punished U/s 276B with rigorous imprisonment for a period which shall not be less than 3 months but may raise to seven years and with a fine.

Key points to note

Consider these crucial points concerning TDS on the sale of property –

• The tax is calculated on the property's total price and not only on the amount above Rs. 50 million.
• For all transactions, you need the PAN card details of the seller.
• The tax rate for NRI sellers will differ, calculated under Section 195 of the IT Act.
• Each instalment will include taxes if you pay for the property in instalments.
• You must submit the tax deduction to the government within seven days of filing Form 26QB.

Generally, anyone who deducts TDS must get a TAN (Tax Deduction Account Number). However, in the case of TDS on land, the buyer is not required to obtain TAN.

In Form 26QB, you must enter information like names, addresses, PAN numbers, phone numbers and email addresses of the seller and the buyer. You must also include the property's full address and contract date, the total value of the consideration, the date of payment, etc.

The buyer should double-check that the seller's PAN number is correct. Otherwise, the seller will not be able to receive credit for the tax deducted by the buyer, as the credit will be given based on the buyer's PAN card information as provided in Form 26QB.

Conclusion

Many people are confused about what TDS is when buying a property. Many mistakenly believe, like GST or stamp duty, that TDS is another tax you must pay when purchasing a property, and it is not an additional tax but a step you must meet in your real estate transaction.

The TDS will be deducted, which will be reflected in the buyer's Form 26AS, and the buyer can take a refund or adjust his tax liability when filing the return. The government made it mandatory for the buyer to deduct for tracking high-value transactions to prevent the circulation of black money. The 2022 budget amendment will bring parity between sec 50C, 43CA and 194IA. It will result in higher tax collection but must be refunded if the buyer claims exemption.