How to Claim TDS on Sale of Property?

19 August 2024

19,617 6 mins read

Whether the seller has capital gains or not, TDS must be deducted. By submitting a tax return, the seller can request a reimbursement. Read this blog to know more.

TDS on property is applicable for the purchase of real estate, such as a building, a portion of a building, or a piece of land. Although repaying real estate debts is a big responsibility, the procedure might be beneficial. You Can Claim TDS on Sale of Property.

You can reduce your tax liability on the interest and principal you repay by doing this. The TDS on the property and its many features are described in the following blog.

Table of Contents

What is Property Tax?

The tax imposed on real estate owners by the government, such as a municipality or municipal corporation, is referred to as property tax or house tax. It is employed in the upkeep and operation of the neighbourhood’s public facilities, including the roads, sewage system, parks, lighting, and other infrastructure services.

Generally speaking, it is assessed on all real estate properties, including residential and commercial buildings, related land, and improvements made to the property, but not on empty pieces of ground without an adjacent structure. These taxes are often computed based on the land’s value, and the item possessed.

The various property divisions consist of the following:

Land, in its most secure state, unaltered or upgraded
Land improvements include artificial structures like buildings and go-downs
Personal property is anything that can be moved, such as buses, vehicles, and cranes
Intangible property.

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TDS on Purchasing Property

The Indian government passed a rule requiring the buyer of a property to withhold tax at source, or TDS, from the price they pay the seller for their property to prevent the use of black money in immovable property transactions
A buyer must deduct TDS at 1% of the sale consideration under the notable Section 194IA of the Income Tax Act. It is applicable if the payment is worth at least ₹50 lakhs
The Section includes land as well as residential, commercial, and other property. You must be aware that this clause does not apply to transactions involving the purchase of agricultural land.

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Section 194IA of the Income Tax Act

TDS on the property is typically subtracted from the person who remits the income and deposits with the Income tax department
According to Sections 194IA and 194IB, the buyer of the property and the tenant, respectively, are responsible for deducting TDS on the property
When you submit your income tax returns, you can claim TDS on the property
The buyer of an immovable property that costs more than ₹50 lakhs is required by Section 194IA to deduct TDS from the purchase price before paying the seller. The property’s TDS rates is 1% for this deduction
TDS must be subtracted from the purchase price by the buyer, not the vendor
Section 194IA does not apply if the transaction is less than ₹50 lakh; in that case, no TDS is needed
TDS on real estate must be paid on the total transaction price, not just the amount for properties worth more than ₹50 lakh. So, for instance, TDS will be applied if you buy a house worth ₹70 lakh and not if it costs ₹20 lakh
A payment made in instalments will have TDS deducted from each instalment
Club dues, parking fees, advance payments, maintenance, and electricity costs are now included in the ‘consideration for immovable property’. It implies that such property-related expenses will be considered when calculating the total tax liability. It applies to real estate purchased after 01 September 2019
For TDS on property deduction under Section 194IA, both the buyer and the seller must have PAN cards
If the buyer cannot obtain the seller’s PAN, the TDS rate rises to 20%
The TDS on the immovable property shall be paid in terms of Form 26QB within thirty days after the end of the month in which the TDS was deducted
The buyer must issue Form 16B, which must be given to the seller and include all the TDS information.

Filing a TDS Claim for a Property Sale

When paying the seller for any immovable property (i.e., a building, a component of a building, or any land, excluding agricultural land) valued more than ₹50 lakh, the buyer is required as of 01 June 2013 to deduct tax at 1% at source (TDS)
The Income Tax Act provides details in Section 194IA
The buyer obtains Form 16B and delivers it to the seller
The seller provides their PAN so the buyer can fill out the online form and send it to the Income Tax Department for TDS
If the property buyer has deducted the taxes from the sale consideration and submitted them, check the Form 26AS Annual Tax Statement
Obtain Form 16B to pay the TDS.

How to Get a TDS Refund After Selling a Home?

Imagine you are a seller of real estate who is unaware of how to request a TDS refund for a real estate transaction. In this situation, you should immediately have these two things in mind:

Give the buyer your PAN so they can provide TDS information to the Income Tax Department
If the buyer subtracted any taxes from the deposit, check your Form 26AS Annual Tax Statement.

There is no other way to file a TDS claim if you are a real estate seller. You should be aware that the Income Tax Law enables taxpayers to pay interest at a rate of 0.5% per month for submitting their ITRs on time. This Act is enforceable by Section 244A.

Penalties for Failing to File a TDS

The amount of the tax deduction shall be paid to the Government within seven days after the deduction was made in the month
The penalty for failing to pay TDS on real estate could be up to ₹1 lakh, according to Section 271H
In the event of a default brought on by the failure to file Form 26QB on time or at all, a fee must be assessed under Section 234E of the Act
The late filing penalty under Section 234E is ₹200 per day, up to the entire amount of tax payable
The late reporting cost may be reduced or waived if the property seller has already paid capital gains tax.

Requirements of Section 194IA

Section 194IA of the Income Tax Act requires the buyer of an immovable property (other than agricultural land) to deduct TDS at a rate of 1% of the total sale amount when the cost of the property is Rs. 50 lakhs or more.

The following conditions need to be satisfied for the applicability of section 194IA:

– The payer is any person, being a transferee, responsible for paying (other than the person referred to in section 194-IA) to a resident transferor any sum by way of consideration for the transfer of any immovable property (other than agricultural land).

– The payee must be a resident transferor of an immovable property (other than agricultural land).

– The payment must be by way of consideration for the transfer of any immovable property (other than agricultural land).

– The quantum of payment, or stamp duty value of property, must be Rs. 50 lakhs or more.

No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property and the stamp duty value of such property, both, is less than fifty lakh rupees The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section

How to File TDS on Property (Form 26QB)?

To file TDS on property (Form 26QB), follow these steps:

Log in to your account on the Income Tax e-filing portal
Select e-File > click on e-Pay Tax from the dropdown
Click on ‘+ New Payment’
Click on the proceed button on the tab ‘26QB- TDS on Property’
Add Buyer’s Details
Add Seller’s Details
Add Property Details
The tax amount will be calculated automatically. Once done, click on ‘continue’
Verify the details and click on ‘Submit’

After successful payment, download the Form 16B for the seller.

Important Considerations:

It is important to note that the buyer must file and submit Form 26QB within 30 days from the end of the month in which the tax was deducted.
Form 26QB challan has to be filled by each buyer for every unique buyer-seller combination for their respective share.

TDS on Property Rent

As per Section 194-I of the Income-tax Act, the rent received from the renting out or subletting of property is subject to Tax Deduction at Source (TDS) . The following are the key regulations regarding the TDS on rent:

Tax (TDS) is required to be deducted by the person paying the rent from the rent payable and paid to the government
The due date of payment of TDS on rent is thirty days from the end of the month in which the deduction is made
In case the tenant fails to deduct tax (TDS) on rent paid, he/she is liable to pay interest at 1% per month to the government
If the rent paid in a financial year is less than Rs. 2,40,000, then persons other than those mentioned above are not liable to deduct tax (TDS)

When to Deduct the TDS on Property Rent?

As per, Section 194-I if the rent paid in a financial year is less than Rs. 2,40,000, then one is not liable to deduct tax (TDS)
If the rent paid is less than Rs. 50,000 per month, then individuals and HUF not covered under tax audits are not liable to deduct tax
Rent for land/building/furniture/fittings is subject to 10% TDS on the rent amount paid
Individual/HUF not liable to tax audit is subject to 5% TDS on the rent paid in cases where more than Rs. 50,000 is paid per month as rent.

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Conclusion

When purchasing a property, the buyer must deduct TDS from the transaction price and pay the difference to the government. The seller can file his income tax return later to request the TDS refund. To learn more about TDS on sale of property, get in touch with Vakilsearch.

FAQs

What happens if the buyer fails to deduct and deposit TDS on a property sale?

The buyer of the property is responsible for deducting TDS on the sale of the property, and failure to do so can result in penalties and interest charges.

Can the seller claim a refund of TDS on a property sale?

Yes, the seller can claim a refund of TDS if the amount deducted is more than the actual tax liability. The seller can file an income tax return to claim the refund.

Is TDS deducted on agricultural land sales?

No, TDS is not deducted from the sale of agricultural land.

At what rate is TDS deducted on property sales?

TDS is deducted at the rate of 1% of the sale consideration for property sales worth Rs. 50 lakh or more. The rate may vary depending on the date of payment/credit to the seller.