What is TDS?
Tax Deduction at Source or TDS refers to deducting tax from the income at the point of payment to other party. Individuals who buy property might require to deduct the tax at source, before making payment to the purchaser, also required to file TDS returns on quarterly basis.
In this article we will specifically talk about TDS on purchase of Immovable (House) property by an salaried individual or even if individual not having valid TAN
What is TAN in income tax?
The full form of TAN is the Tax Deduction and Collection Account Number, which is a unique 10-digit alphanumeric number for tax collection and deduction purposes which is issued by the Income Tax Department. It is mandatory for all persons responsible for deducting or collecting tax to obtain a TAN, with few exceptions like the case I will be explaining below that is section 194 IA of Income tax act.
What is TDS Section 194IA of The IT Act?
There are various sections of TDS as I have explained in above article(link below) to view it, one of the important sections which applies on individuals purchasing immovable property.
TDS Rate Chart (FY 2024-25; AY 2025-26): https://taxguru.in/income-tax/tds-rate-chart-fy-2024-25-ay-2025-26.html
194 IA deals with Transfer of immovable property other than ruler agriculture land by any person, here any person shall mean buyer of the property, Though this Section covers residential property, commercial property, as well as land.
The TDS shall be deducted on the income guaranteed to the seller and shall be deposited to the government, this TDS on which is deducted on purchase of property can be claimed by seller at the time of filing their Income Tax Returns (ITR)
Section 194IA tells that if the buyer of immovable property having a value more than Rs.50 lakhs is required to deduct TDS on property while making payment to the seller. The TDS to be deducted on purchase of property for this section shall be flat 1% on the amount or value of property.
Now you might think, 1% on what amount or value?
TDS is required to be deducted at 1% of consideration or stamp duty value (SDV) whichever is higher if the total amount exceed 50 lakhs
This consideration also includes club membership fees, car parking fees, electricity and water facility fees, maintenance fees, any type of advance fees or fees incidental to transfer of immovable property
What are the Requirements of Section 194IA?
The main requirement of this section is that TDS on purchase of property must be paid by buyer on the full amount of higher of sale consideration or SDV. It should not be assumed that it is paid only the sum above Rs.50 lakh, else penalties of short deduction will be attracted.
For Example, if you buy a property of a value Rs.90 lakhs and 5 lakhs are the charges for parking, then TDS will be calculated on Rs.95 lakh and not Rs.40 lakh or 90 lakhs.
If you are making payment in instalments, then the TDS will be deducted on each instalment at same percentage and manner.
The PAN card is mandatory in this case else, if the buyer fails to obtain the PAN of seller, then the rate of TDS rises from 1% to 20%.
How to pay TDS?
The TDS on the immovable property is required to be paid with the help of Form 26QB in 30 days from the end of the month when the TDS was deducted, and the buyer may obtain Form 16B from seller.
Now if you have read my article “Everything about TDS Return Filing” on taxguru, you might be wondering what is this new form 26QB? As I didn’t mention about it at that point of time.
This form was introduced as per the Finance Act, 2013, for keeping a check on the extensive use of black money in immovable property transactions, any individual or HUF which is purchasing a property valuing at least Rs 50 lakh is required to deduct TDS when paying the consideration the seller. This TDS amount must be paid to the government by filing Form 26QB within 30 days from the end of the month when the TDS was deducted.
Example: Suppose I purchased a property from my friend Divyajeet, and the transaction was initiated on 15 June 2024. In this case, I am required to submit the TDS amount on or before 30 July 2024. If I fail to file the return within the stipulated due date, a late fee of Rs 200 per day will be imposed on me, it looks small amount but cumulatively might bring-up a huge impact
26QB is an online statement cum challan form which is used for the payment of this TDS to the government. This form requires all details of the property along with the details of buyers, sellers, tax deposits, and is available on Income tax website, I must suggest to get professional’s help while filing this form as there are many adverse consequences if filed wrongly.
When to deduct the TDS?
We already discussed when to file the return above, now when to deduct it on property purchase? The purchaser is required to deduct TDS on property at the time of crediting the amount of the seller’s or at the time of payment, whichever is earlier.
How to Claim TDS on Sale of Property?
For claiming TDS amount, the property seller is required to provide the PAN number to buyer who is required to fill-up the form 26QB online and submit to the Income Tax Department for TDS, then he shall verify that the property buyer has deposited the taxes deducted from sale consideration and should be reflecting in the Form 26AS which is an Annual Tax Statement. Also there is the option with seller to obtain the Form16B from buyer for actually paying the TDS to the government.
What are the Penalties Applicable on Non-Filing of TDS?
The penalty for not paying TDS on property may go up to Rs. 1 lakh as per the Section 271H as I explained in my TDS return filing article. To avoid such type of penalty, you must pay the TDS on property along with interest amount and any late payment fee as and when you receive a tax notice, demanding the same.
Section 201, demands you to pay an interest of 1% per month or part of the month, in case the tax was not deducted at all. And this shall be 1.5% if the tax was deducted but not deposited to the government in form 26QB
In case of any kind of default made on account of non/late filing of Form 26QB, a fee shall be levied u/s 234E of the Act, which means those people who fail to file their TDS returns or file it after the due date as I explained above, then it will attract penalty of Rs. 200 per day from the day after the due-date until the day the return is filed, but If the seller of the property has honestly declared and paid capital gains tax, then the late filing fee could be reduced or might be removed as per the act.
Conclusion
I got dozens of clients who faced loss of lakhs of rupees, after facing similar issue, which made me to write a detailed article on above topic, it’s true that understanding and complying with these TDS provisions and requirements of Section 194IA is very important for property buyers. Me as a Chartered Accountant have a duty towards them to educate them and ensure they ensure timely deductions, and accurate payments, hence proper filing is required to avoid heavy penalties.
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