Section 194-IA: TDS On Purchase of Property

Overview

The TDS on the purchase of property is the tax that is deducted by the buyer of property on the behalf of the seller of the property. Under Section 194-IA of the Income Tax Act, a buyer who purchases an immovable property for ₹50 lakh or more is required to deduct 1% TDS of the total sale considerations. The immovable property covers land, buildings, which can be residential houses, plots, commercial buildings, etc. The buyer of the property will deduct the tax and deposit tax with the central government along with the details of the seller. The details of TDS on the sale of property are furnished using Challan 26QB.

Want to know more about the TDS on the purchase of property? In this article, we will provide you with complete details on TDS on the purchase of property under Section 194-IA and Form 26QB and eligibility criteria, procedures, and penalties for non-payment.

What is Section 194-IA: TDS on Purchase of Property in India?

The TDS (Tax Deductible at Source) on Purchase of Property is a payment that is made by the buyer on behalf of the seller when he or she buys a property from a seller. The buyer of the property will deduct the tax and deposit tax with the central government along with the details of the seller. The details of TDS on the sale of property are furnished using Challan 26QB.

According to Section 194-IA of the Income Tax Act, a buyer of the property who purchases an immovable property (other than agricultural land) for ₹50 lakh or more is required to deduct 1% TDS of the total sale considerations.

When and How Much TDS to Deduct on Purchase of Property?

• TDS percent on purchase of property: The TDS to deduct on the purchase of property is 1% of the total sale considerations at the time of property purchase. If sale consideration is paid in installments, then TDS is required to be deducted and deposited for each installment. In case the seller fails to furnish the PAN, then the buyer needs to deduct TDS at 20%.
• Sale Considerations: Amount paid to the individual (seller): With the effect from September 1, 2019, the sale considerations in immovable property shall include all charges like club membership fees, car parking, electricity or water facility fees, maintenance fees, or any similar charges that are incidental to the transfer of an immovable property.
  After Budget 2022 amendment of Section 194-IA, the TDS has to be deducted on the amount paid to the seller or the stamp duty value (SDV) of the property, whichever is higher. Therefore, the total sale consideration is (SDV or sale consideration), whichever is higher.
• Time Frame to deduct and deposit TDS : TDS on the sale of property needs to be deducted at the time of payment of the property. The TDS on immovable property must be paid using Form 26QB within 30 days of the end of the month in which it was deducted. The buyer needs to furnish the Form 16B to the seller which is available after 2-3 weeks of depositing the TDS which can be downloaded from the TRACES portal.

Documents Required for TDS Filing for Property Purchase

Here is the list of documents required for TDS filing on property purchases:

• TDS form
• PAN numbers of the buyer and seller
• Buyer’s and seller’s PAN category
• Both parties’ identity proof
• Complete addresses of both parties
• Correct and full address of the property in question
• Information about the credit or payment
• Form 16B

Procedures for Deduction and Paying TDS on Purchase of Property

Here are the procedures to apply for the TDS certificate on the purchase of property:

Step 1: Determine the sale consideration of the property:

The sale consideration of property should be determined first in order to take a step towards TDS filing. This is essential for making a just and fair assessment of tax liability on the individual's pocket. If the property is being undervalued, the TDS would deduct lower than the specific standards and may pose a risk of hefty fines and interest charges. On the other hand, the overvalued property held by an individual increases the chance of a heavy tax burden on an individual. So, the TDS is applicable to the sale consideration of the immovable property that exceeds ₹ 50 lakh, also including stamp duty value, whichever is higher.

Step 2: TDS Deduction on sale of property:

The deduction of TDS on property levied 1% of the total sale consideration at the time of payment. This deduction rate is applicable for TDS deductions that will be levied on the purchase of property if the sale consideration exceeds ₹ 50,00,000 under Section 194IA of the Income Tax Act, 1961. This deduction rate of 1% for TDS is applicable for all types of property (except the agricultural land). In a special case, if a buyer is unable to acquire the PAN card of the seller, then the 1% rate rises to 20%.

Step 3: Challan Form 26 QB:

Next, to prove that the buyer has deducted the TDS on the purchase of property from the seller, they have to file for an online form of 26QB for TDS payment on the property transactions. This form should be filled out within 30 days in which the TDS is deducted from the end of the month.

Step 4: Pay the TDS using Form 26QB and generate Form 16B:

After filing the 26QB form for TDS payment on property transactions, an individual has to proceed with the payment of the TDS . Before making any transactions on the website, an individual has to make sure that they fill in the required details, such as the name of the applicant, buyer and seller information, property details, and tax deposit details. Buyer can generate the Form 16 B from TRACES portal which can be furnished to the seller.

Checklists for TDS under Section 194-IA of the Income Tax Act

Here are the eligibility criteria for the TDS certificate after TDS payment to the government, under Section 194IA of the Income Tax Act:

• Deduction source:

  According to Section 194IA, the buyer of an immovable property must deduct TDS at 1% while making the payment to the seller of the property.

• Exemption under TDS:

  The exemptions under TDS on purchases of property are exempt from the tax deduction when the value of property is less than ₹50 lakh and is undertaken for residential construction purposes or agriculture property of any value.

• How would TDS be paid in installments?

  TDS is deducted at the rate of 1% for each installment whenever the sale consideration is made in installments for the immovable property. Likewise, for any installment a buyer made to the seller, an amount would be deducted for the TDS (typically 1%) and they have to fill out the Form 26QB and issue Form 16B to the seller on each payment.

• Mandatory use of PAN cards:

  The PAN card is the mandatory 10-digit alphanumeric code that is provided by the seller to the buyer in order to deduct the general rate of TDS, i.e., 1%. Fails to obtain the PAN from the seller, shall impose a 20% rate of TDS, which is higher than the standard rate. The buyer of the immovable property doesn’t need to obtain TAN (tax deducted account number) to deposit the TDS. Buyer can deposit TDS on the basis of his or her PAN.

• Deadline for the payment of TDS:

  TDS on the purchase of immovable property needs to be deposited within 30 days from the end of the month in which TDS was deducted using Form 26QB.

• Real estate, which is not mandatory under TDS for the purchase of property:

  Agricultural land has been kept as an exception from TDS for the purchase of property.

Penalties and Fines of TDS on Purchase of Property

The tax amount must be paid to the government within 30 days, whether in installments or in lump sums. If the taxpayer fails to file the TDS return on time, then he needs to pay the penalty or fine ranging from ₹10,000 to ₹100,000 under Section 271H.

To avoid the aforementioned legal consequence of late submission of TDS returns to the government, an individual has to:

• Pay additional charges, including TDS, interest charge, and late payment amount prescribed under government guidelines.
• Pay interest @ 1% per month from the date it was to be deducted till actually deducted, under Section 201.
• On the other hand, an individual has to pay 1.5% as an interest charge if the tax has been deducted but not paid to the government on the due date.
• Under Section 234E, the late filing will cause you to pay Rs. 200 per day, subject to a maximum amount of TDS.

Why Choose Bizfoc for TDS?

At Bizfoc, we specialize in providing you the best accounting services in filing your TDS for the purchase of property. Here are the reasons why we are known for our services to our clients on filing TDS:

• Assist in suggesting the right documents for TDS filing.
• Providing valuable insights on sections of TDS computations.
• Prescribe forms as per the necessity.
• Helps in accurate computations for TDS computations and returns.
• Tailored advice and guidelines for TDS filing.

In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.

Conclusion

The TDS for the purchase of property is mandatory while purchasing the property payment by the buyer on the behalf of seller. This helps to ensure an individual would comply with Indian Tax Laws and regulations. To get the TDS return filing, you may need to know each aspect and be aware of the form you have to fill out for the TDS on the purchase of property.

Frequently Asked Questions