In this article, we will discuss the regulatory structure of TDS on sale of property and filing of the returns thereforth.
Introduction
TDS stands for Tax Deducted at Source. According to the Income Tax Act 1961, for transactions of a certain nature made above a prescribed threshold in terms of value, then the individual making the payment is responsible for deducting a prescribed percentage of that amount as tax before making the payment and depositing the deducted amount with the government. This system was introduced to plug the holes in tax revenue collection by making a third-party responsible for the collection of taxation. TDS on Sale of Property is usually applicable to those sources of income that are consistently periodical like salary income, rental income, etc. This is because when the income is consistently periodic, it is easy to determine the tax liability of the person earning the income in advance.
However, some non-consistent sources of income have also been brought under the purview of TDS, especially those that are usually one-time transactions and are very high in value. One such source of income brought under the purview of TDS on Sale of Property.
Types of TDS
TDS on Sale of Property – There are two types of TDS certificates
- Annual TDS Certificate: This certificate is issued annually for the TDS on salary. The TDS certificate is also named as form 16, and for employees having a salary less than Rs. 2,50,000, TDS is not applicable.
- Quarterly TDS Certificate: This certificate is issued on income apart from salary. This TDS certificate comes under form 16A, and the TDS amount is deducted from the interest that is provided by the banks.
What is the TDS on Sale of Property?
Under section 194A, any individual purchasing a property of more than 50 lacs has to pay 1% TDS on Sale of Property. TDS on the sale of immovable property was brought into effect on 1st July 2013 by the finance minister with the sole motive of removing black marketing and corruption in the real estate industry, and bringing transparency in the process of TDS on sale of a property. This also aims at the complete removal of the involvement of any third party to pay the taxes.
The TDS on Sale of Property has to be paid online or offline through form 26QB and further form 16B has to be submitted to the seller as a documented proof of the TDS payment and deductions.
TDS Deduction: Requirements for TDS on Sale of Property
Under section 194IA, certain things have to be considered while filing the TDS on Sale of Property. These include:
- 1% of the total amount (e.g., ₹70,000 for 70 lacs) has to be deducted by the buyer.
- No TDS amount will be deducted when the sales amount is below 50 lacs.
- As per the union budget 2019, all the additional charges including parking fee, electricity fee, or membership fee, has to be included in the TDS deduction on the sale of the property, for the sale of the immovable property.
- If the amount is paid in installments, the TDS amount is deducted for each installment at the specified rates.
- The TAN (Tax Deduction Account Number) is not mandatory to make the payment for TDS on Sale of Property, however, it is mandatory to have a PAN, failing which the TDS amount cannot be paid.
- However, the PAN of both the buyer and the seller has to be compulsorily submitted, or else the TDS amount deduction will be at 20%.
- Once the TDS deduction on the sale of the property is done, it is mandatory to submit Form 16B as the TDS certificate to the seller within 10-15 days of the deduction.
- In case, there is more than one seller or buyer, the TDS Filing will still be applicable at similar rates and will have to be paid by both (buyers) equally.
- Form 26QB and form 16B has to be submitted to the government within 30 days of the TDS deduction.
TDS on Sale of Property: Notice for Non-filing Form 26QB
In the Non-filing of Form 26QB, the income tax department utilizes the Annual Information Return (AIR) furnished by the registrar/sub-registrar office to monitor property transactions. If the transaction amount exceeds Rs. 50 lakh, the department can detect any discrepancy in tax deduction at source (TDS) or failure to file TDS within the given deadline.
TDS on Sale of Property – In such cases, the Buyer will receive a notice from the IT department urging them to comply with the necessary TDS requirements.
Sample Notice received by the Taxpayer
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Subject: CPC (TDS) Follow up: 26QB Statement has not yet been filed for the purchase of property during the fiscal year 2013-14 Communication date: 05/04/2023 Dear Buyer of Immovable Property, PAN(XXXXX1234X), Based on the information received in the Annual Information Return (AIR) from the Registrar/Sub-Registrar, you have executed a transaction to purchase immovable property exceeding Rs.50 lakhs (Rupees Fifty Lakhs) during Financial Year 2022-23. However, you still need to file the TDS Statement in Form 26QB. Your urgent attention is requested regarding filing the TDS Statement in Form 26QB and issuing TDS Certificates in Form 16B downloaded from TRACES. |
TDS on Sale of Property Paying TDS through Form 26QB
In the payment of TDS on Sale of Property section, the payment can be done easily both through online and offline methods, in a few easy steps. The process for payment of TDS deduction on the sale of property includes:
- Visit the portal of the income tax department through the link
- On this page, open the option of form 26QB.
- Further on the next page, you have to choose from two options, i.e., corporate payer or non-corporate payer. In the case of the corporate payer, code 0020 has to be chosen and for the non-corporate payer, 0021 has to be chosen.
- Next, you are provided with two payment options, i.e., online through net banking or offline through banks. For the offline, a receipt with an acknowledgment number is provided with a validity of 10 days.
Mandatory Filing of Form 26QB
The Finance Act of 2013 mandates the deduction of TDS on Sale of Property where the consideration for the property is equal to or exceeds ₹ 50 Lakhs. This is governed by Section 194 IA of the Income Tax Act, 1961, along with Rules 30, 31, and 31A of the Income Tax Rules.
As per these rules, the property purchaser must deduct tax at a rate of 1% when making payment of the sale consideration. The deductible tax should be deposited to the Government Account via the e-tax Payment option (Netbanking) or authorized bank branches. This deduction should be paid to the Central Government within seven days from the end of the month in which it is made.
The PAN of the Seller and Purchaser must be furnished mandatorily in the online form (Form 26QB) for information regarding the property transaction. The facility for this is available on the website www.tin-nsdl.com.
Additionally, the property buyer must issue a TDS certificate in Form 16B to the seller, certifying the taxes deducted and deposited into the Government Account. This certificate can be obtained by registering on the website of Centralized Processing Cell (TDS) www.tdscpc.gov.in.
TDS on Sale of Property: Downloading form 16B
To obtain form 16B for TDS on sale of property section, one needs to register themselves first on the TRACES portal. After the registration is completed, the TDS Filing certificate will be reflected on the portal, which can then be submitted to the seller. The procedure for downloading form 16B for TDS on Sale of Property is as follows:
- Login on the TRACES portal.
- Under the download section, click on the option of ‘Form 16B’ (for the buyer).
- Next, enter the PAN details of the seller along with the acknowledgment number, then click on the ‘Proceed’ option.
- Next, verify all details and click on the ‘Submit Request’ option.
- Now, the request is processed.
- After the submission, form 16B is available to download in the form of a .zip file.
- After downloading, one needs to enter the password to open the document. The password is the DOB of the applicant.
Issuance of TDS Certificates in Form 16B downloaded from TRACES
Buyers are required to issue TDS certificates after generating and downloading them from TRACES. These certificates can only be considered valid if downloaded from the TRACES portal. TRACES stands for “TDS Reconciliation Analysis and Correction Enabling System” and can be accessed at www.tdscpc.gov.in (http://www.tdscpc.gov.in/).
Implications of Non/Late Filing of TDS Statements/TDS on Sale of Property
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For Buyers of Property:
If a buyer fails to file or files Form 26QB late, he will be charged a fee under section 234E of the Act. He will be required to pay a fee of Rs. 200 (two hundred) every day, during which such failure continues. In addition, the Buyer will also be held responsible for any defaults related to late deduction, late payment, and the interest charged on them. The Assessing Officer may also levy a penalty on the Buyer under Section 271H.
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For Sellers of Property:
A seller must file or file Form 26QB on time to be able to claim the TDS credit. The tax that was deducted must be deposited into the Government account through e-tax payment options (Netbanking) or any authorized bank branch. Any sum deducted under section 194-IA must be paid to the Central Government’s credit within a period of seven days from the end of the month in which the deduction was made.
Penalties Applicable on Non-filing of Form 26QB
| Late Filing Fee | Calculation |
| Late filing fee under section 234E | TDS on Sale of Property – If you do not submit or delay in submitting Form 26QB, you may have to pay a fine under section 234E. The fine is Rs. 200 per day until you submit Form 26QB. The buyer would be liable for defaults of late deduction, late payment, and interest. |
| Penalty | Calculation |
| Penalty under section 271H | TDS on Sale of Property – Assessing Officer may levy penalty under section 271H at his discretion. This section is applicable when a statement as required by the tax laws is not submitted timely. The minimum penalty under this section is Rs 10,000 and it may go up to Rs 1 lakh. But if they pay TDS with a late fee & interest and submit the statement within 1 year of the time allowed, they won’t have to pay any penalty. |
| Interest on | Calculation |
| Not Deducting TDS | TDS on Sale of Property- 1% per month from the date on which you were supposed to deduct TDS until the day on which you actually deduct TDS. |
| Not Depositing the TDS with the government | 1.5% per month from the date on which TDS is deducted to the date of payment to government. |
TDS on Sale of Property to NRI
TDS on Sale of Property: Under the TDS on sale of immovable property section, separate rates have to be paid in case of TDS on the sale of the property to NRI. When a property is sold by an NRI, the tax has to be paid on the number of gains by the NRI. For the tax payable, there are mainly two types of gains, namely short-term gains and long-term gains.
- Short-term Gains: When the property is sold within 2 years after it is bought, it is called a short-term gain. The buyer is liable to pay 30% of the TDS on the sale of the property to NRI in this case.
- Long-term Gains: When the property is sold 2 years after it is bought, it is called long-term gains. The buyer is liable to pay 20% of TDS on sale of property to NRI in case of long-term gains.
In the case of inheritance as well, the individual is liable to pay a certain amount of taxes as per the rates set by the income tax slab.
Who is Required to Deduct TDS?
TDS (Tax Deducted at Source) is required to be deducted by any person or entity making specified payments such as salaries, rent, interest, commission, professional fees, contract payments, etc., to another person or entity, as per the provisions of the Income Tax Act, 1961. In the case of the transfer of immovable property, the Buyer of the property is required to deduct TDS on Sale of Property.
Refund of Excess TDS
- Determine the Excess TDS Amount: Calculate the TDS amount that has been deducted from your income by referring to your Form 16 or Form 26AS.
- File an Income Tax Return: If your total income is below the taxable limit, you can file an income tax return and claim a refund of the excess TDS amount.
- Claim Refund of Excess TDS: To claim a refund of the excess TDS amount, you need to fill in the details of the TDS deducted from the income tax return.
- Verify the Refund Status: You can verify the status of your refund by logging in to the Income Tax e-filing website or by checking the status on the NSDL website.
- Receive the Refund: Once the refund is processed by the Income Tax Department, the amount will be credited to the bank account that you provided while filing the return.
How Does Deposit TDS Deduct?
- Visit the website of your bank and log in to your account using your user ID and password.
- Click on the ‘Tax’ or ‘Payments’ option and select the ‘TDS’ option.
- Fill in the required details like the amount of TDS, TAN (Tax Deduction Account Number), and other details as requested by the bank.
- Verify the details and confirm the payment.
- After successful payment, a receipt will be generated. Keep this receipt safe as proof of payment.
Saving Tax on Capital Gains
The deductible tax percentage might seem quite high to some individuals, and so, to help reduce the tax amount that needs to be paid to the government, there are 3 ways of exemptions from the taxes, which include:
- Section 54: This exemption is possible in the case of long-term capital gains. Under this, the price of the new property purchased has to be higher than the earlier one, and the exemption will be available only on the gain amount. Investment can also be made in the gains of a property under construction. However, this is liable only for 3 years.
- Section 54F: This exemption is also possible in the case of long-term capital gain obtained on the sale of a residential property or a capital asset.
- Section 54EC: Under this, the exemption from taxes can be availed by investing the amount in bonds. For this purpose, the bonds issued by the National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC) have been specified. The bonds so purchased are redeemable only after 5 years.
Conclusion
The TDS on sale of property section might seem like an added liability to most of the property buyers, however, it is essential for transparency in the government. Further, special considerations have to be made by the NRIs while selling their property. To avail the exemptions from tax liabilities, individuals must follow all the rules according to the ways specified by the government. Lastly, it is mandatory for all the people having the threshold income to pay the TDS amount, or else they will be liable to pay penalties under sections 234E and 271H, including late fee submission charges as well.
FAQ’s
Who is responsible for deducting TDS on the sale of the property?
The buyer of the property is responsible for deducting TDS on sale of property if the consideration value of the property is Rs. 50 lakhs or more.
I am a buyer of the property. Do I require to obtain a TAN to deduct TDS on the sale of the property?
No, the Buyer is not required to obtain a separate TAN (Tax Deduction and Collection Account Number) to deduct TDS on the sale of property. The Buyer can use their PAN (Permanent Account Number) for the same.
What if I don’t have the seller's PAN to deduct TDS on the sale of the property?
It is mandatory to provide both the Buyer's and seller's PAN details while filling out Form 26QB. In case the seller does not have a PAN, the Buyer should deduct TDS at a higher rate of 20%. If the seller has applied for a PAN but has not received it yet, the Buyer can enter the PAN application number instead.
I have encountered an error on the NSDL e-Gov website while entering online form details; what should I do?
In case of any error or technical issue, while filling out the online form, the Buyer should contact the TIN Call Centre at 020 - 27218080 or write an email to tininfo@nsdl.co.in for assistance.
How are transactions of joint parties filed in Form 26QB?
TDS on Sale of Property: In case of joint ownership of the property, the Buyer should fill out separate Form 26QB for each seller based on their respective share in the property. The TDS amount should be calculated and deducted accordingly.
