Tax Deduction at Source-TDS on Sale of Immovable Property

Property is a capital asset that involves buildings, flats and even a plot of land. Many investors invest in property so that they can make a profit by selling the property at a higher rate. Real estate yields attractive returns and that is why the purchase and sale of property is quite common among investors looking to generate returns.

Moreover, having a property for residential or commercial needs is also a basic need and so many people buy a plot of land for constructing their dream homes or invest in a home of their choice.

Property transactions, however, have tax implications and if you are buying or selling property, you should understand the tax implication involved.

The very first thing which a property transaction involves is TDS on sale/purchase of the property. Do you know what it is and how it is supposed to be calculated and submitted?

TDS on sale of immovable property

As per Section 194IA of the Income Tax Act, 1961, if you buy any property whose value is INR 50 lakhs or more, you are required to deduct TDS (Tax Deducted at Source) from the amount payable and then pay the remaining amount to the seller.

This rule came into effect from 1st June 2013 and applies to immovable property transactions.

Rules for TDS deduction

TDS would be applicable on immovable property transactions subject to the following rules:–

  • The property should be an immovable property which can be a building, a part of a building, a plot of land or any other type of immovable property.
  •  The rule does not apply to agricultural land.
  •  Liability to deduct TDS u/s 194IA does not arise if the seller is Non-resident. In such a case, Section 195 will be applicable.
  • If Section 194LA (i.e TDS on Payment of Compensation on Acquisition of Certain Immovable Property) is applicable then provisions of Section 194IA will not be applicable.
  • The value of the property should be INR 50 lakhs or more.
  • TDS would be applied to the consideration paid for buying the immovable property. Consideration earlier meant the cost price of buying the property. However, in the Union Budget of 2019, the Finance Minister, Mrs. Nirmala Sitharaman, redefined the term ‘consideration for the transfer of immovable property’.

As per the latest definition, the ‘consideration’ for buying a property would include all types of charges like a club membership fee, maintenance fee, advance fee, electricity fee, car parking fees, water facility fee or any other charges of similar nature which are incidental to the transfer of the immovable property.

This definition would apply to buying and selling of property done after 1st September 2019.

  •  TDS would be applicable at the rate of 1% on the consideration amount.
  • The onus of deducting the TDS would be on the buyer of the property and not on the seller.
  •  A Tax Deduction Account Number (TAN) is not required for deducting TDS. The buyer can use his/her PAN number to deduct TDS from the sale consideration and submit the TDS to the Government.
  • If the payment for the property is being done in installments, TDS deductions would be done on each installment paid.
  • The PAN number of the seller would also be required for TDS deductions. If the seller’s PAN number is not available, the TDS rate would become 20%.
  • TDS deduction would have to be done either at the time of actual payment of consideration or at the time of credit, whichever is earlier.

Calculation of TDS

Here is a simple example for calculating the TDS which is deductible by the buyer:-

Suppose you buy a property worth INR 48 lakhs from Mr. Sharma on 25th September 2019. You pay INR 2 lakhs as an annual membership fee for club membership of the residential complex, INR 1 lakh as water fee and INR 1.5 lakhs as the parking fee.

Calculation of TDS:-

Case scenario Explanation TDS deductible
Case 1 Since the property is bought after 1st September 2019, the different fees payable for buying the property would be added to the property value to arrive at the sale consideration. Thus, the consideration would become –
INR 48 lakhs + INR 2 lakhs + INR 1 lakh + INR 1.5 lakhs
= INR 52.5 lakhs
1% on INR 52.5 lakhs
= INR 52,500
Case 2 If the PAN card of the seller is not available, TDS would be deducted at 20% 20% of INR 52.5 lakhs
= INR 10.5 lakhs

 

How to deduct TDS and file it?

The buyer has to pay the TDS deducted to the Government using Form 26QB. The TDS should be submitted to the Government within 30 days from the completion of the month in which TDS was deducted. So, if the buyer deducts TDS on 15th October, Form 26QB should be filled and submitted with the TDS within 30th November.

The buyer is required to follow the below-mentioned steps to deduct TDS through Form 26QB and file it with the Government:-

  • To get Form 26QB, the buyer should visit the official portal.
  • On the website, choose ‘Form 26QB’ and then choose 0020 or 0021. 0020 should be chosen if the buyer is a corporate and 0021 should be selected by non-corporate tax-payers.
  • You will get an online form that you should fill stating the relevant details.
  • Payment of TDS can be done through two ways and you would be given the options at the end of the form. You have to choose either option and then hit ‘Proceed’. The two options are as follows:–
    • E-tax payment immediately – under this option you can pay the TDS immediately through online payment by using the net banking facility provided by your bank.
    • E-tax payment on a subsequent date – under this option you would have to pay TDS by visiting the branch of a bank.
  • If you pay the TDS immediately through net banking, you would be able to print Challan 280 where the option of 800 is selected. This option denotes that TDS is paid on the purchase of a property. You should print the challan and keep it handy.
  • If you pay at a later date by visiting the bank, you would get an online receipt for Form 26QB. This receipt would also contain a unique acknowledgment number. The receipt and the number would be valid for 10 days within which you should visit the bank and pay the TDS. Once the TDS is paid, the Challan would be generated which you should keep handy.

For first-time users, you would have to register with TRACES. You need to register as a tax-payer to get Form 16B. To register you would need your PAN number and the challan number which you get at the time of payment. After the registration is done, Form 16B would be generated.

To download Form 16B, the seller’s PAN number would have to be entered along with the unique acknowledgment number generated when you paid the TDS. Provide the details and the Form would be ready to be downloaded.

The download would be in a .zip file format while Form 16B would be in .pdf format. To open the form your (the buyer’s) date of birth would be required. You should print this form and submit it to the seller showing the evidence of deduction of TDS from the sale consideration.

The TDS which you deduct and deposit would also be reflected in Form 26AS. You can check Form 26AS and you would be able to get the details of the TDS which has been deposited on the sale of immovable property.

Implications of not filing Form 26QB

An Annual Information Report is received by the Income Tax Department every year from the registrar or sub-registrar office. This report shows the department the details of property transactions that exceed INR 50 lakhs.

If from the details, the department finds out that the buyer of the property did not deduct TDS on the sale consideration, the department sends a notice to the buyer. Moreover, a fee is also levied on the buyer for non-deduction of TDS or late filing of Form 26QB.

As far as the seller of the property is considered, not filing or late filing of Form 26 QB also affects him/her. The seller would not get the TDS credit for the sale consideration that he received after TDS.

Penalties for non-compliance with TDS rules

  • If the TDS has not been deducted by the buyer or if it has been deducted but not submitted or for any other reasons the TDS rules are violated,a penalty is charged. The rate of penalty depends on the violation done by the buyer and is as follows –
  • If TDS has not been deductedIf the buyer has not deducted the TDS from sale consideration, the interest would be calculated at 1% per month or part of the month from the date the TDS should have been deducted to the date the TDS has actually been deducted.
  • If TDS has not been submitted with the Government- If the buyer has deducted TDS from the sale consideration but the same has not been submitted to the Income Tax Department within the specified time, interest would be charged at 1.5% per month or part of month from the date the TDS was deducted till the date the TDS was actually paid to the department.
  • Late filing of Form 26QB- This fee is charged as per the provisions of Section 234E of the Income Tax Act if the buyer does not file Form 26QB within the stipulated period. The amount of the fee is INR 200 for each day of not filing the TDS certificate Form 26QB.

The total amount of late fee cannot exceed the amount of total TDS deducted for that period. Additionally, the buyer is considered liable for late deduction and late payment and interest are also charged on the TDS which should have been deducted or paid respectively.

  • Non-submission of the required statement- If the buyer does not submit a statement of TDS, as required by tax laws, in a timely manner, the Assessing Officer of the Income Tax Department can levy a penalty under Section 271H of the Income Tax Act.

This penalty is at the sole discretion of the Assessing Officer. It would be INR 10,000 and can go up to INR 1 lakh. However, if the buyer deposits the TDS with the relevant fee and interest and also submits the statement within a year of the specified time frame, the penalty would not be charged.

So, if you buy or sell any property whose total sale consideration exceeds INR 50 lakhs, make sure to comply with the TDS rules and file Form 26QB timely to avoid any fees and penalties.

Frequently Asked Questions-FAQs

Q: What is the filing process of form 26QB when the property is purchased or sold by joint parties?

Ans: Form 26QB has to be filled by each buyer for each seller for every unique buyer-seller combination. So, if the property is being bought jointly by two buyers, each buyer would have to fill up Form 26QB stating the details of TDS. Similarly, if a joint property held by two individuals is being bought by one buyer, two Forms 26QB would have to be filled and submitted.

Q: I bought the property in April 2013. Would I have to file Form 26QB?

Ans: No, the requirement of Form 26QB is only for properties that are bought on or after 1st June 2013.

Q. The sale consideration of the property is INR 52 lakhs. Since the exceeding limit is INR 50 lakhs, would TDS be calculated on INR 2 lakhs?

Ans: No, for TDS calculation, the entire sale consideration is considered. So, TDS would be calculated on INR 52 lakhs, not INR 2 lakhs.

Q. When should the TDS certificate be submitted to the seller?

Ans: The buyer has to give a TDS certificate (Form 16B) to the seller within 15 days from the due date for depositing the tax deducted.

Author Bio:

CA Abhishek Soni
Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department.

In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.

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