TDS on Property Purchase in India

A country's economy depends significantly on taxes paid by its inhabitants. Various types of taxes, such as income taxes and sales taxes, contribute to improving the country's infrastructure. Among these taxes, Tax Deducted at Source (TDS) is crucial in ensuring the smooth collection of taxes.

This comprehensive guide discusses the detailed aspects of what TDS is, what TDS is on property purchase when it is required, and the necessary documents for TDS on property purchase.

What is TDS?

TDS, or Tax Deducted at Source, is a mechanism for collecting income tax directly from the income source. The payer deducts a specific percentage of the payable amount and deposits it into the government account on behalf of the payee. The payee can then claim credit for the Tax deducted at source against their income tax liability.

The Income Tax Act of 1961 and the Income Tax Rules of 1962 govern TDS. Sections 190 to 206C of the Act cover various aspects of TDS, including rates, thresholds, responsibilities, certificates, returns, and more. Rules 30 to 37 of the Rules outline the procedures, forms, time limits, etc., for TDS compliance. TDS applies to different payment types, including salaries, interest, dividends, rent, commission, and fees.

Key Things to Remember about TDS

1. The Buyer must deduct and pay the government for TDS on property purchases above Rs. 50 Lakh.
2. The power and responsibility of deducting the TDS are with the Buyer, not the seller.
3. If the Buyer does not discharge this duty, the authorities can penalise them.
4. The Buyer needs to fill out form no.26QB to credit the TDS.
5. If there is more than one buyer and seller, multiple forms must be filled out by each party.

What is TDS on Property Purchase?

TDS payment is mandatory for all property transactions, whether buying or selling. When paying for the property, the Buyer must deduct the TDS amount from the total and then pay the remaining sum to the seller. The deducted TDS amount can be submitted to the income tax office.

The specific TDS amount to be deducted varies based on the seller's location and the relevant regulations. For sellers residing in India, it is 1% of the sale price. However, for NRI sellers, the TDS amount is contingent upon the total amount received by the seller.

Hence, the seller's residential status determines the TDS on property purchases. However, the Buyer's residential status is immaterial. TDS applies only to properties valued at Rs. 50 Lakh or more.

When is TDS on Property Purchase Required?

• When the immovable property transferred is rural agricultural land.
• When the immovable property is being compulsorily acquired under any law by the Government.
• When the total amount of consideration paid for purchasing immovable property is less than Rs. 50 Lakh.

Documents Required for TDS on Property Purchase

1. TDS form
2. PAN numbers of both the buyer and seller
3. PAN category of the Buyer and seller
4. Both parties' identity proof
5. Addresses of both parties
6. The correct and complete address of the property is in question
7. Information about the credit or payment

What are Form 26QB and 16B?

Form 26QB is a challan and statement to file TDS on property purchase. The document is essential as it contains all the property transaction details, such as the involved parties and the amount of TDS paid. Form 16B is a record of the deducted amount for Property TDS. The Buyer must subtract the TDS on the property at the time of the transaction.

Guide to TDS on Property Purchase

Applicability of TDS on Purchase of Property

TDS is applicable only in cases where the property price is Rs. 50 Lakh or above. TDS applies only to residential and commercial properties. Properties include immovable property like apartments, flats, land, houses, and commercial buildings.

TDS Rates on Property Purchase

Where the property value is Rs. 50,00,000 or higher, the property buyer must deduct 1% of the sale consideration as TDS and deposit this amount to the Government within 30 days from the deduction date.

TDS on Purchase of Immovable Property

If the seller is a resident of any immovable property (excluding agricultural land), the consideration is Rs. 50 Lakh or more, TDS must be deducted under Section 194IA at a rate of 1% of the Sale Consideration. However, if the sale price and the stamp duty value for the property are less than Rs. 50 Lakh, TDS will not be applicable.

TDS on Purchase of Property from NRI

If the seller is a non-resident and he has a certificate of Lower TDS Deduction from the Income Tax Officer (Section 195 of the Indian Income Tax Act, 1961) for any immovable property, 20% of The Capital Gains, along with Surcharge and Cess, is applicable as TDS. Capital gain is the net profit/gain from the property transfer, which is held as a capital asset.

Where the seller is a non-resident, and no certificate is obtained from the Income Tax Officer (Section 195) for any immovable property, TDS is to be deducted at 20% of the Sale Consideration, also with Surcharge and Cess. There is no threshold limit for TDS deduction under Section 195.

Scope of Section 194-IA

Section 194IA of the IT Act requires a deduction of 1% TDS on property price when the property to be sold is Rs. 50 Lakh or more.

When and How to Deduct the TDS

TDS must be deducted when the conditions of section 194IA are fulfilled, and there is a standard method for the deduction of TDS.

TDS Rules on Purchase of Property

1. Threshold limit: Property purchase TDS applies when the property price exceeds Rs. 50 Lakh. Buyer must deduct 1% of total consideration.
2. Applicability: TDS applies to residential and commercial property purchases. This covers all immovable property transactions: flats, houses, land, and commercial buildings.
3. Buyer's responsibility: The buyer must deduct TDS at the specified rate and remit it to the government as advance tax for the seller.
4. TAN requirement: Buyer must have TAN(Tax Deduction and Collection Account Number) as it is mandatory for TDS deduction on property purchase.
5. Form 26QB: The buyer must complete and submit Form 26QB online via the NSDL website or TIN-FCs(Tax Information Network Facilitation Centers), providing property, seller, buyer, and TDS payment details.
6. TDS payment: Upon completing Form 26QB, the buyer should make a TDS payment to the government through online modes, such as net banking or cards, depositing it by the due dates.
7. TDS certificate: After TDS payment, the buyer downloads the Form 16B certificate from the TRACES website, which is proof of TDS deduction.
8. Home loan and TDS: When financing property with a home loan, TDS is deducted from the entire consideration amount of the loan, not just on the cash paid.
9. Exemptions: No TDS is needed if the property value is less than Rs. 50 Lakh or if it is agricultural land.

How to Calculate TDS on Property Purchase

1. Determine the Property Value: This is the amount agreed upon by the buyer and seller from which the TDS amount will be calculated.
2. Calculate the TDS Amount: Calculate 1% of the total amount.
3. Verify the PAN Information: Confirm the seller's PAN before payment. TDS is obligatory only if the seller has a PAN; otherwise, a 20% rate applies if the seller doesn't have a PAN.
4. Deposit the TDS: The buyer must remit the deducted TDS amount to the government within 30 days of the deduction month through the government website for online deposit.
5. Obtain a TDS certificate: After the TDS has been submitted, you can download the TDS certificate.

Steps to Pay TDS on Purchase of Property

Step 1: Apply for a TAN (Tax Deduction and Collection Account Number) through the official website of the Income Tax Department. It is a unique 10-digit alphanumeric code. It is not required for immovable properties.

Step 2: File Form 26QB to report the TDS transaction. Provide accurate details about the buyer, seller, property, TDS amount, and other required information. PAN cards of both the buyer and the seller are required.

Step 3: You will receive a challan with a unique acknowledgment number. Use it to pay the TDS amount online through net banking or any other approved payment method.

Step 4: Once you have paid, the TDS certificate (Form 16B) will be available for download from the TRACES website in 5 days.

You can also pay TDS online through the official website of the Income Tax Department https://www.incometax.gov.in/iec/foportal/

Exemption and Consequences of Non-payment TDS on Property Purchase

Exemption from TDS is granted when buying a property from a recognized financial institution or housing finance company, Transfer of agricultural land, immovable property below Rs. 50,00,000, Immovable property from one NRI to another, Where the residential house is purchased from the state, central government, or any authority they constitute and When purchasing a residential house from an Indian resident relative with consideration below Rs. 50 Lakh and stamp charges less than Rs. 50,000.

If the buyer doesn't pay the TDS by the due date, they will be charged 1% interest per month or part of a month from the deduction date until the payment date. The buyer will also pay a daily late fee. The income tax department can levy a penalty on the buyer for non-payment or delayed TDS payment under Section 271H of the Income Tax Act.

Conclusion

What is TDS? TDS, or Tax Deducted at Source, is a mechanism for collecting income tax directly from the income source. The payer deducts a specific percentage of the payable amount and deposits it into the government account on behalf of the payee.

Key things to remember about TDS:

1. The buyer must deduct and pay the government for TDS on property purchases above 50 Lakh.
2. The power and responsibility of deducting the TDS are with the buyer, not the seller.
3. If the buyer does not discharge this duty, the authorities can penalise them.
4. The buyer needs to fill out form 26QB to credit the TDS.
5. If there is more than one buyer and seller, multiple forms need to be filled by each party

What is TDS on property Purchase? TDS payment is mandatory for all property transactions. When making the payment for the property, the buyer must deduct the TDS amount from the total and then pay the remaining sum to the seller. The deducted TDS amount can be submitted to the income tax office.

When is TDS on property purchase required?

• Immovable property transferred is rural agricultural land.

• Immovable property is being compulsorily acquired under any law by the Government.
• When the total amount of consideration paid for the purchase of immovable property is less than Rs. 50 Lakh

Documents required for TDS on property Purchase:

1. TDS form
2. PAN numbers of both the buyer and seller
3. PAN category of the Buyer and seller
4. Both parties' identity proof
5. Addresses of both parties
6. Correct and full address of the property in question
7. Information about the credit or payment

What are Form 26QB and 16B? Form 26QB is a challan and statement used to file TDS on property purchases. Form 16B is a record of the deducted amount for Property TDS. The buyer must subtract the TDS on the property at the time of the transaction.

Guide to TDS on property purchase:

• Applicability of TDS on purchase of property.
• TDS rates on property purchase
• TDS on purchase of immovable property
• TDS on purchase of property from NRI
• Scope of section 194-IA
• When and how to deduct TDS

TDS rules on property purchase

• Threshold limit
• Applicability
• Buyer's responsibility
• TAN requirement
• Form 26QB
• TDS payment
• TDS certificate
• Home loan and TDS
• Exemptions

How to calculate TDS on property?

• Determine the property value
• Calculate the TDS amount
• Verify the PAN information
• Deposit the TDS
• Obtain a TDS certificate

Steps to pay TDS for property purchase online:

• Step 1: Apply for a TAN
• Step 2: File Form 26QB to report the TDS transaction.
• Step 3: Use challan to pay the TDS amount online through net banking or any other approved payment method
• Step 4: Once you have paid, the TDS certificate (Form 16B) will be available for download from the TRACES website in 5 days.

Exemptions on TDS for property purchase:

• If the property value is less than Rs. 50 Lakh
• Transfer of agricultural land
• Transfer of Immovable property from one NRI to another through inheritance or gift.
• Where the residential house is purchased from the state, central government, or any authority constituted by them.
• Exemption from TDS is granted when buying a property from a recognized financial institution or housing finance company.
• When purchasing a residential house from an Indian resident relative with consideration below Rs. 50 Lakh and stamp charges less than Rs. 50,000.