TDS on Immovable Property Purchase: Section 194IA Explained

TDS On Purchase of Immovable Property – Section 194IA

Are you in the process of buying a property in India? If so, it’s essential to understand the tax implications surrounding the purchase. In particular, the deduction of Tax Deducted at Source (TDS) plays a crucial role in property transactions. Let’s dive into the details of TDS on the purchase of immovable property, specifically governed by Section 194IA of the Income Tax Act.

Why TDS on Property Purchase?

Property transactions, such as buying or selling real estate, are common in India. However, this sector is susceptible to high levels of tax evasion. To curb tax evasion and ensure transparency, the Indian government has made buyers responsible for deducting TDS at a rate of 1% at the time of making payments to the seller. This withholding of TDS is a preventive measure to ensure that the government receives its share of tax on property transactions.

Key Points to Know About TDS on Property Purchase:

i. Threshold Amount: The buyer is required to deduct TDS at a rate of 1% if the sale consideration for the property is 50 lakhs or more. However, as of April 1, 2022, TDS is required to be deducted if the stamp duty value of the property is 50 lakhs or more. In other words, TDS must be deducted on either the sale consideration or the stamp duty value, whichever is higher. It’s important to note that the buyer is responsible for deducting TDS, not the seller.

ii. Applicability: TDS is applicable to all types of properties, including residential, commercial, industrial properties, flats, buildings, and vacant plots. The only exception is agricultural land.

iii. Consideration Components: The consideration for an immovable property includes various charges, such as club membership fees, car parking fees, electricity or water facility fees, maintenance fees, advance fees, or similar charges related to the property transfer. This has been applicable since September 1, 2019, as per Budget 2019.

iv. Installment Payments: If the payment is made in installments, TDS must be deducted on each installment paid to the seller and not when equated monthly installments (EMIs) are paid to the bank.

v. Multiple Buyers: In cases where there are multiple buyers, and the individual purchase price of each buyer is less than 50 lakhs but the aggregate consideration exceeds 50 lakhs, TDS is still required to be deducted.

vi. TAN Not Required: The buyer of the property does not need to obtain a Tax Deduction Account Number (TAN) for depositing TDS with the government. The payment can be made using the buyer’s Permanent Account Number (PAN). However, if the buyer fails to obtain the seller’s PAN, TDS must be deducted at a higher rate of 20%.

vii. Filing Form 26QB: TDS on immovable property has to be paid using Form 26QB within 30 days from the end of the month in which TDS was deducted.

viii. TDS Certificate (Form 16B): After depositing TDS to the government, the buyer is required to furnish the TDS certificate in Form 16B to the seller. This certificate is typically available 10-15 days after depositing the TDS, and the buyer must provide it to the seller.

ix. Tax Credit: The TDS amount deducted will be reflected in the sellers Form 26AS, and the seller can use this amount to claim a refund or adjust their tax liability at the time of filing their income tax return.

Consequences of Non-filing or Late Filing of Form 26QB:

The Income Tax Department regularly receives Annual Information Returns (AIR) from the registrar and sub-registrar offices, which contain details of property transactions exceeding Rs. 50 lakhs. If the buyer fails to deduct TDS at the rate of 1% of the transaction amount or doesn’t file TDS within the specified time frame, the Income Tax Department will send a notice to the buyer.

The consequences for non-filing or late filing of Form 26QB include:

i. Late Filing Fee: A late filing fee of Rs. 200 per day continues until the filing is completed.

ii. Interest for Not Deducting TDS: Interest at a rate of 1% per month is applicable from the due date of TDS deduction until the actual deduction date.

iii. Interest for Not Depositing TDS: If TDS is not deposited with the government, interest at a rate of 1.5% per month applies from the date of TDS deduction to the date of payment to the government.

In summary, TDS on property purchase is a critical component of the Indian tax system. Buyers play a pivotal role in ensuring compliance with these regulations and withholding the appropriate TDS on property transactions. Understanding these rules, rates, and consequences is essential for all parties involved in property transactions. It is advisable to seek professional guidance for accurate compliance and timely filing of TDS to avoid penalties and interest.

For further assistance, you can reach out to the author at [email protected].