1. INTRODUCTION

The culture of multistoried buildings started with development of economy. Everyone wants to live in developed city with all amenities and facilities which leaded to shortage of land space for residence in particular area. Therefore concept of flats was introduced because we had limited space but sky can be the only limit for building multistoried buildings. The builders came out with many lavishing projects for construction of flats including many fascinating amenities with system of payment in installments i.e. built as it is paid. It is called construction-linked payments. To regulate interest of builders and flat buyers Government introduced RERA Act.

There are many tax implications and regulations which buyers do not know and land up in paying taxes, interest, late fees and penalty. In this article we will discuss the tax implications on purchase and sale of residential flats.

2. TDS ON PURCHASE OF FLAT

The buyer is required to deduct TDS@1% on payments made to builder if sale consideration of flat is Rs.50 Lacs or more. From 01/04/2022, TDS is required to be deducted if Stamp Duty Value of property is also Rs.50lacs or more. This means TDS is required to be deducted if sale consideration or SDV of flat is Ra.50lacs or more. Practically, builders enter into an agreement where sale consideration and SDV of flat is same. This allows builders as well as home buyers to save tax through proper tax planning. The TDS is required to be deducted before making payments of installments. Many home buyers are not aware of this provision and do not deduct TDS at the time of making payment.

TDS on PurchaseSale of Residential Flat

3. WHAT HAPPENS IF TDS IS NOT DEDUCTED

If buyer does not deduct TDS then he will be liable to pay interest, late fees and penalty.

S. No. Particulars Remarks
1. Interest 1% per month on TDS required to be deducted
2. Late Fees Rs.200 per day from due date of filing of return but limited to amount of TDS
3. Penalty Minimum Rs.10000/- to Maximum Rs.100000/-

No penalty will be levied if TDS along with interest and late fees is paid and return is filed within one year of its due date.

4. HOW TO MAKE PAYMENT OF TDS DEDUCTED

Buyer is not required to take TAN number. He is required to make payment by filing return cum challan Form 26QB and deposit the same with Government. The return is required to be filed within 30days from the end of month in which TDS is deducted. The buyer is required to furnish TDS certificate in Form 16B to seller which is available around 10 to 15 days after depositing TDS.

5. HOW BUILDER WILL TAKE CREDIT OF TDS DEDUCTED

The TDS deducted will be reflected in Form 26AS of builder after filing of form 26QB by buyer. It normally takes 7-10 days to get it reflected in Form 26AS. The builder can take credit of TDS while filing return of income.

6. WHY HOME BUYERS ARE MADE RESBONSIBLE TO DEDUCT TDS

The flow of money is from buyer to seller, therefore buyers are held responsible to deduct TDS. Government wants to track both buyer and seller who have entered into purchase and sale transaction of property to verify that whether both buyer and seller have paid taxes. It wants to verify that whether investment made by buyer in purchasing flat is tax paid and seller has paid taxes on sale of property. It wanted to trace big ticket transactions therefore limit of Rs.50lacs is put in provision. To ease compliance procedure, it is made clear that TAN number is not required to be taken by buyer and a simple challan cum form 26QB is filed by making payment.

7. WHAT IF DEAL GETS CANCELLED

The builder has to refund the amount taken by buyer along with TDS. But practically it is not possible because builder has already invested the installments taken in construction of flat. Therefore, it wholly depends on mutual agreement between builder and home buyer.

8. GST ON UNDERCONSTRUCTED FLATS

Regular Housing 5% Without ITC
Affordable Housing 1% Without ITC
Commercial 12% With ITC

Affordable housing means flats whose carpet area is less than 60sqmt in metropolitan cities and less than 90sqmt in non-metropolitan cities. The cost of property should not exceed Rs.45lakhs. GST is not payable on completed projects and ready to move in flats.

9. TDS IS CHARGED INCLUDING GST OR EXCLUDING GST

The buyer has to deduct TDS excluding GST paid on under constructed flats. TDS is not required to be deducted on GST Amount.

10. OUR CONCLUSION

The normal layman who purchases house is not aware of law that TDS is required to be deducted by buyer. They come to know when they see receipt of installment given by builder in which in footer note it is given that installment is accepted after deducting TDS@1%. After knowing the provision they feel them self in trouble because they had earlier paid installments without deducting TDS. It is the most common mistake made by individual while purchasing house because they feel that why tax would be paid on purchase of property. Financial Tree Company makes you aware of all such provisions and helps you to implement it so that your time, money and energy is not wasted.

The above comments do not constitute professional advice. The Author can be reached at companyfinancialtree@gmail.com  or visit our website www.financialtreecompany.com My name is CA Divya Agrawal and I am Practising Chartered Accountant, CEO and Founder of FINANCIAL TREE COMPANY (An online return filing and Tax Consultancy Company). We also upload educational videos in You tube and name of our channel is FINANCIAL TREE COMPANY. Our aim is to help people in improving their financial health by spreading knowledge and love. Stay Financially Fit and Healthy.

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Author Bio

Qualification: CA in Practice
Company: www.financialtreecompany.com
Location: Bhilai, Chhattisgarh, India
Member Since: 30 May 2019 | Total Posts: 64
FINANCIAL TREE COMPANY PROVIDES BEST POSSIBLE TAX SOLUTIONS AT REASONABLE RESOURCES AND TIME TO MEET CLIENT SATISFACTION AND NEED. website-www.financialtreecompany.com Contact No. 9111872247 Email ID- companyfinancialtree@gmail.com (AN ONLINE RETURN FILING AND TAX CONSULTANCY COMPANY) View Full Profile

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7 Comments

  1. Piyush Jindal says:

    What if we purchase right of under construction property from first buyer.
    Total Consideration which is initially payable to Builder by first buyer was 1.20 Crore out of which buyer had already paid 30 lac as first instalment not he sold his share to another buyer for Rs 40 lac.

    Ques.
    1. 2nd buyer need to deduct TDS of first buyer (Even sale consideration is less than 50 Lac)
    2. What amount he need to mention in total consideration if he need to deduct TDS (Is it incl profit taken by first buyer or the basic consideration)

  2. A K JAIN says:

    1% TDS is to be deducted on the purchase of property on the money paid to the builder.
    Pl info if the builder has given a discount in the total cost of the flat then the TDS is to be given on the discount or not.
    The net payment to the builder is reduced due to the discount effect.

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