TDS on Sale of Property: Section 194IA of Income Tax Act

TDS on sale of property under Section 194IA mandates buyers to deduct 1% TDS for transactions exceeding ₹50 lakh. The deducted amount must be deposited via Form 26QB, and Form 16B must be issued to the seller. This article covers exemptions, penalties for non-compliance, and TDS rules for NRIs.

TDS on sale of property under Section 194IA of the Income Tax Act requires buyers to deduct 1% of the total transaction value when purchasing immovable property worth over Rs 50 lakhs. This section ensures tax is paid upfront and that the transaction gets reported to the tax authorities. There are some actions the buyer and seller should take to comply with TDS provisions. It overview of TDS obligations, their penalties, and the filing procedure for properties.

Section 194IA of Income Tax Act

The provisions of Section 194IA of the Income Tax Act provide that tax shall be deducted at source from any immovable property transactions. Therefore, the person responsible to pay such a transaction is required to deduct tax at such rate as specified by the Income Tax Department and file a statement reporting the transaction, such as payment and tax deducted for the transaction undertaken in this regard, as a self-reporting requirement for compliance and transparency.

TDS on Sale of Immovable Property Under Section 194-IA

TDS on Sale of Immovable Property Under Section 194-IA mandates 1% deduction, timely deposit, PAN details, Form 26QB submission, and Form 16B issuance as proof of deduction.

• From 1 June, 2013, Section 194IA provides for income tax deduction at source on any property transfer where the consideration exceeds Rs 50 lakhs. 
• The buyer has to deduct 1% TDS from the total transaction value. 
• The TDS deducted has to be deposited with the Central Government by way of Form 26QB, within a period of seven days of the end of the month in which the deduction was made. 
• The buyer and seller must fill in their PANs on the online form on the NSDL website. 
• The buyer will also obtain Form 16B from the TDS website after the TDS is deposited and hand it to the seller as proof of deduction.

When Is TDS on Sale of Property Required?

TDS applies to transactions executed in favor of transferees wherein considerations are given for the sale of an immovable property, which includes land and buildings but does not include agricultural land. However, certain transactions do not require TDS:

1. The transferred property is rural agricultural land.
2. The government acquires the property pursuant to some statute.
3. Total consideration for the property is less than Rs. 50 lakhs.

In all these situations, TDS is exempted under the Property Transactions Act.

TDS Rate on Property Sale

The TDS rate on the transfer of immovable property under Section 194IA is charged at 1% on the total amount of consideration. It is to be appreciated that the TDS is to be deducted by the buyer and not by the seller. The above-stated rate gets applicable only if the seller provides the PAN details.

The moment the seller does not possess a PAN or does not disclose it, the TDS will be charged at 20% without any further differential such as surcharge or cess; meaning a straight deduction from the transaction amount as soon as it is paid to the seller.

Key Aspects of Section 194IA

Requirements are listed under section 194IA apart from other aspects are stated below:

• Condition for Deduction: TDS is deducted only if property purchase value is more than Rs 50,000,00.
• Installment Payments: If the payment is made in installments, tax should be deducted with each installment.
• No TAN figure: The buyer does not have to acquire a Tax Deduction Account Number (TAN); the PAN can be used to deposit the TDS. 
• Time of Deduction: TDS has to be deducted on the time of each payment including installment installment payments. 
• TDS Payment and Documentation: The payment of TDS should be done in Form 26QB within 30 days from the end of the month in which the deduction takes place. The buyer shall have to obtain Form 16B from the seller after making these payments which usually takes 10-15 days after the deposit.

TDS on Purchase of Property 

The TDS real estate transactions apply equally to sellers and buyers. Whereas sellers are liable for capital gains tax on the sale, buyers have various obligations under Section 194IA of the Income Tax Act. In simple words, any buyer purchasing immovable property other than agricultural land for Rs. 50 lakhs or more has to deduct 1% TDS from the transaction amount under this section. This deduction is to be made at the time of payment and deposited with the government within 30 days in Form 26QB. The buyer is obliged to issue a TDS certificate (Form 16B) to the seller as proof of this deduction. 

Tds on Sale of Property by NRIs

Non-Resident Indians (NRIs) are liable to pay capital gains tax in India when they sell a property. For inherited properties, the purchase date by the original owner is pertinent for tax consideration in deciding whether the gains are long-term or short-term. Further, an efficient calculation of capital gains would require the inclusion of expenses incurred by the previous owner in adjusting the value of the property. The buyer is expected to deduct TDS from the sale proceeds and remit the same to the Indian Income Tax Department within the statutory time. An application for payment of TDS by the buyer is required through Form 27Q. Long-term capital gains on properties attract a flat rate of 20%, while any short-term gains are taxed in accordance with the relevant income tax slab applicable to the NRI in India.

Form 26QB and Form 16B in Property Transactions

For property transactions involving TDS under Section 194IA, two important forms come into play: Form 26QB and Form 16B. These forms help ensure that tax deductions are properly reported and documented, providing transparency and compliance in property sales.

Form 26QB: Challan-Cum-Statement for TDS on Property Transactions

Form 26QB is used by buyers of an immovable property in declaring and depositing tax deducted at source (TDS) on such purchases. This form is a combination of a challan as well as a statement to ensure that TDS deducted is deposited with the government online. 

Form 16B: TDS Certificate for Property Transactions

Form 16B is given by the buyer to the seller stating that TDS on the property transaction has been deducted and deposited with the government. This serves as proof for the seller regarding tax payment.

Documents Required for Filing TDS on Immovable Property Sale

Before filing TDS on a property sale under Section 194IA, ensure you have the required documents for accurate reporting:

• Registration of Sale Agreement: Registered copy will be needed for determining TDS amount.
• Property Details: Information like location, size and age helps identify TDS that is applicable.
• PAN Cards of Buyer and Seller: Both buyer and seller must have PANs for TDS purposes. 
• Aadhaar Number for TDS Returns: All legal requirements fulfill that Aadhaar details shall be required in TDS return.

Steps to File TDS on Sale of Property

To pay TDS on a property transaction using Challan 26QB and obtain Form 16B for the seller, follow these steps:

Online Payment through Challan 26QB

Step 1: Log in to the Income Tax Portal

• Visit the Income Tax e-filing portal and log into your account.
• Click on ‘e-File’ and select ‘e-Pay Tax’ from the dropdown.

Step 2: Initiate a New Payment

• Click on ‘+ New Payment’ to start the process.

Step 3: Select TDS on Property (26QB)

• Choose ‘26QB – TDS on Property’ as the applicable payment category.
• Proceed to enter transaction details.

Step 4: Provide Buyer Details

• The buyer’s details will be auto-filled but can be edited if required.
• Click ‘Continue’ after verification.

Step 5: Enter Seller Details

• Fill in the seller’s PAN, address, and other relevant details.

Step 6: Add Property and Sale Details

• Enter details such as property type, address, agreement date, and transaction value.
• The TDS amount will be calculated automatically.
• Click ‘Continue’ to proceed.

Step 7: Complete the Payment

• Select your preferred payment method and finalize the transaction.
• A challan confirming the payment will be generated.

Step 8: Register on TRACES

• If you’re a first-time user, register on the TRACES portal as a taxpayer using your PAN and tax payment challan details.
• After registration, verify Form 26AS (Part F) after seven days to ensure the TDS details are correctly reflected.

Step 9: Download Form 16B

• Log into TRACES, go to the ‘Download’ tab, and select ‘Form 16B (for Buyer).’
• Enter the seller’s PAN and the acknowledgement number for the transaction.
• Submit the request and check the ‘Requested Downloads’ section once processed.
• If the status shows ‘Available,’ download the zip file (password: deductor’s birthdate in DDMMYYYY format), extract the PDF, and print Form 16B.

Notice for Non-Compliance with Form 26QB Filing Requirements

Notice for Non-Compliance with Form 26QB Filing Requirements is issued when property transactions exceed Rs 50 lakh, and the buyer fails to deduct 1% TDS or file Form 26QB on time, as tracked through the Income Tax Department’s Annual Information Return (AIR).

Penalties for Non-Filing of TDS on Sale of Property

Violation of the TDS clause regarding property transactions amounts to a penalty that could be extremely heavy for both buyers and sellers. As provided by Section 194-IA, any TDS deducted during the sale of property should be deposited with the government within seven days after the end of the month in which deduction was made. Given below are the consequences of non-compliance:

Implications for Buyers:

• Late Filing Fee Under Section 234E: Late submission of Form 26QB will attract a late fee of Rs. 200 per day until the maximum penalty is equivalent to the TDS amount. 
• Late Deduction and Payment Interest: In case TDS has not been deducted timely, interest attracts a penalty of 1% for the month or part thereof. If already deducted but not paid to the government, it is at 1.5% for the month or part thereof from the due date up to the time of payment.
• Penalty under Section 271H: The Assessing Officer shall further impose a penalty between None to Rs 10,000 and Rs 1,00,000, in case of failure to furnish TDS statement or providing erroneous details.

Implications for Sellers:

• The TDS Credit is Put at Stake: if the buyer fails to file the Form 26QB within the due time or does not file it at all. This means that the credit cannot be availed by the seller, which, in turn, may affect his/her income tax filings.
• Ensure Proper Payment of TDS: The sellers must verify the TDS deposit made by the buyer through an authorized bank or via online tax payment system. This will safeguard the TDS credit claim from getting into any trouble.

Key Considerations

• Late Filing Fee: No late filing fee shall exceed the TDS amount that should have been deducted. Hence the maximum late payment penalty shall be only up to the TDS amount. 
• Even Filing Without TDS: A filing of Form 26QB must be made to report the transaction details to the tax authorities even if there is no deduction of TDS (e.g. due to exemptions or below the threshold value for TDS deduction). 
• Aggregate Penalties: In the case of delays both in deducted and in depositing of TDS, the interest amount payable is calculated at the rate of 1% for late deduction of the tax and 1.5% for late payment of the tax.

Conclusion

All buyers and sellers have to know keeping TDS on property transactions in order to meet the requirements of the Income Tax Act. TDS deduction, self-payment, and furnishing forms should be completed at correct times; otherwise, penalties will be incurred. These parties must remain wise concerning any obligations placed on them and keep their house in order regarding documentation. For expert guidance on TDS on sale of property and property transactions, reach out to legal professionals specializing in tax compliance and property law to ensure you meet all the requirements effectively.

FAQs

What happens if the buyer doesn't deduct TDS on the property?

If the buyer fails to deduct TDS, they may face penalties, including interest charges and a late filing fee. Additionally, the buyer will be responsible for paying the TDS to the government, along with possible fines under Section 271H.

I am a buyer. How do I procure TAN to report the TDS on the sale of the property?

Buyers do not need to obtain a TAN to deduct TDS on property transactions. Instead, they can use their PAN for reporting the TDS through Form 26QB.

I am a buyer. Should I deduct TDS on the amount exceeding the property value of Rs 50 lakh or the entire amount I bought the property?

The buyer must deduct TDS at 1% of the total transaction amount, not just the amount exceeding Rs 50 lakh. The full property value is considered for TDS deduction.

What if the property value is more than 50 lakhs?

If the property value exceeds Rs 50 lakh, the buyer is obligated to deduct 1% TDS on the entire transaction amount as per Section 194IA.

Who will pay TDS, buyer or seller?

The buyer is responsible for deducting and paying the TDS on property transactions under Section 194IA, not the seller.

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

Yes, the seller can claim the TDS deducted as a credit while filing their income tax return. If excess TDS has been deducted, the seller can claim a refund from the Income Tax Department.