Understanding TDS on Sale of Property: A Comprehensive Guide

Tax Deduction at Source (TDS) on property sales could be one of the most important elements of the Indian Income Tax System. For both the buyers and the sellers alike comprehension of each their part under section 194IA of the Income Tax Act 1961 is of utter importance. We will go into TDS on property dealer transactions in detail, examining: Who is tasked to deduct TDS, Section 194IA provisions, TDS deduction requirements, submission of TDS certificates, form 26QB, and the penalties of noncompliance.

1. Who is liable to deduct TDS on the sale of Property?

The person buying the property is liable to deduct TDS u/s 194A of the Income Tax Act, 1961 and deposit the same with the tax department.

2. What are the provisions under section 194A of the Income Tax Act?

• TDS on a property, as the name suggests, is a tax deducted at the source at the time of purchase of property. TDS on a property is usually deductible from the remitter of the income and deposited with the Income Tax Department within a specified time limit from the date of such deduction.
• As per the provisions of Section 194IA and Section 194IB, TDS on a property is deducted by the buyer of the property and the payer of the rent, respectively.
  TDS on property can be claimed by the seller of such property or landlord at the time of filing their Income Tax Returns.
• Section 194IA states that a buyer of immovable property that costs more than Rs.50 lakhs is required to deduct TDS on the property while paying the seller. The rate of TDS on a property for this deduction is 1% of the amount of sale consideration.

3. What are the other requirements of TDS deduction under Section 194A?

a) TDS on a property is to be deducted by the buyer whereas the seller can claim its credit in their tax return.
b) No TDS is required to be deducted under Section 194IA if the transaction value is less than Rs.50 lakh.
c) TDS on property must be paid on the full amount of sale consideration and not only the sum exceeding Rs.50 lakh. For example, if you buy a property with a value of Rs.55 lakh, TDS will be calculated on Rs.55 lakh and not on Rs.5 lakh.
d) For payments made in instalments, TDS will be deducted on each instalment.
e) Since September 2019, payments such as club membership, car parking, advance fees, maintenance fees, and electricity fees have also been under consideration for immovable property. It implies that such charges attached to the property will also be included in the taxable total.
f) PAN cards of buyer and seller are mandatory for deducting TDS on the sale of Property under Section 194IA.
g) If sellers don’t have PAN, the rate of TDS rises to 20%.
h) The TDS on the immovable property can only be paid using Form 26QB within 30 days from the end of the month in which the TDS was deducted. The buyer is required to obtain Form 16B from Traces and issue the same to the seller.

4. Most Important:

Issuance of TDS Certificate by providing Form 16B after its download from TRACES. All buyers must issue TDS certificates after generating and downloading the same from TRACES. The TDS Certificates can be downloaded from the TRACES Portal only.

5. What are the penalties for Non-Filing of Form 26QB?

• Penalty for Not deducting TDS: Interest at 1% per month from the date on which TDS was supposed to be deducted until the day on which TDS was deducted.
• Not depositing the TDS with the government: 1.5% per month from the date on which the TDS is deducted to the date of payment to the government.
• Late filing fee under section 234E @ Rs 200 per day: In case of non-submission or delay in submission of Form 26QB, the deductor will be liable to pay fine u/s 234E.
  The fine is Rs. 200 per day until Form 26QB is submitted. The buyer would also be liable for defaults of late deduction, late payment and interest.
• Penalty under section 271H of the Income Tax Act: The Jurisdictional Officer may levy penalty under section 271H at his discretion. This section is applicable when a statement if 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. however, if TDS has been paid with a late fee along with the interest component and submitted the statement within 1 year of the time allowed, then no penalty is required to be paid u/s 271H.

6. Mandatory Filing of Form 26QB: –

As per the Finance Act 2013, TDS is liable to be deducted on the transfer of immovable property, if the sale consideration of the property sold exceeds or is equal to Rs 50 Lakhs. Section 194 IA of the Income Tax Act, 1961 provides that:
a) For all such transactions with effect from June 1, 2013, Tax @ 1% should be deducted by the purchaser of the property while making payment of the sale consideration.
b) The TDS so deducted must deposited to the Government Account.
c) The PAN of the seller, as well as the buyer, should be mandatorily furnished in an online form (Form 26QB) while furnishing information regarding the property transaction.
d) A TDS certificate in Form 16B needs to be issued by the Buyer of the property to the Seller, as proof of the taxes deducted and deposited into the Government Account.

Taxcellent helps you in filing Form 26QB and depositing the TDS on the sale of a property. The taxcellent team also assist you in Online Income Tax Return Filing in Delhi and claiming credit of TDS deducted by the buyer of such property. Taxcellent also assist you in issuing Form 16 within due timelines.