Whenever there is a Sale of immovable property, it creates a fair amount of confusion particularly relating to TDS provisions. According to Income Tax Act, 1961, Section 194IA and 195 deals with TDS relating to Sale of Immovable Property. Let us examine the difference between the 2 sections.
| Particulars | Section / Provisions | Section / Provisions |
| Section | 194IA | 195 |
| Category of Payee / Seller | Resident | Non resident |
| Provision | Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax thereon. | Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force: |
| Rate of TDS | 1%. | LTCG – 20%, STCG – Slab rate. |
One of the key aspects to be observed from the above provision is that the amount on which TDS is to be deducted is different under both the sections and it depends on whether the payee / seller is a Resident or Non resident.
Case 1 – TDS provision in case Seller / payee is a Resident
The provisions are very clear. In case the seller / payee of the immovable property is a Resident, then the buyer of the property has to deduct TDS @ 1% on the entire sale consideration as per section 194IA.
Case 2 – TDS provision in case Seller / payee is a Non resident
When it comes to sale of immovable property by a Non resident, the provisions of section 195 clearly states that TDS has to be deducted on the Capital gains chargeable to Tax. (Not on the entire sale consideration).
The most important aspect which many people fail to foresee is that the procedure for deduction of TDS is different under both the sections. There are certain precautions that needs to be taken before deducting TDS. Let us take a look at the section wise procedures.
Procedure for deducting TDS under Section 194IA
In simple terms, this section is applicable if the payee / seller is a Resident. In this case, the person who is liable to deduct TDS (Buyer of the Immovable property) need not have a Tax Deduction Number and Collection Account Number (TAN). The buyer shall remit the TDS amount through a challan cum statement in Form 26QB and a TDS certificate shall be issued to the Payee / Seller in Form 16B.
Procedure for Deducting TDS under Section 195
This section is applicable if the payee / seller is a Non resident. The procedure for deduction of TDS is not the same as mentioned in Section 194IA. i.e The person who is liable to deduct TDS (Buyer of the immovable property) must mandatorily apply for a TAN (There is no option for him to remit the TDS amount through Form 26QB). The step by step procedure under this section is as follows.
1. The buyer of the property should apply for a TAN, which will be allotted to him by the Income Tax Department within a period of 5 – 10 days from the date of application. This must be planned well in advance in order to avoid delay in registration.
2. The section clearly states that TDS has to be deducted on any sum chargeable to tax unde the Act, i.e. the Capital gains. The information on Capital gains will not be available to the Buyer, unless provided by the Seller. The catch here is, the amount of capital gains cannot be computed by the seller himself. The seller has to make an application in Form 13 for NIL / Lower deduction of TDS (Section 197) to the Income Tax officer (ITO). The ITO after reviewing necessary documents, shall issue a certificate to the Buyer of the Property declaring the amount to be paid to the Seller subject to TDS. In case if this application is not made, then the buyer has to deduct TDS on the entire sale consideration. Therefore, it is very important that the seller obtains this certificate from the Income Tax Officer. Based on the above, the buyer has to deposit the TDS amount through challan ITNS 281 and file TDS return in Form 27Q.
3. Thirdly the buyer has to upload the details of remittance in Form 15CA through the Income Tax portal. A CA certificate in Form 15CB must also be obtained based on the details provided in Form 15CA. However, the CA certificate need not be obtained if the buyer has obtained a certificate from the ITO for NIL / lower deduction of tax (Application made by seller in Form 13)
One important point to note while applying for NIL / Lower deduction of TDS in Form 13 is to check the Jurisdiction / ward of the Seller of the immovable property. This can be checked with the PAN details of the seller. This is important because the certificate for NIL / lower deduction of tax will be issued only by the ITO from International Taxation ward. In case if the seller’s jurisdiction is different, he has to apply for a change in jurisdiction before applying for Form 13 certificate.
Keeping the above points in mind, a buyer has to plan well in advance before proceeding with the registration. A chartered Accountant will help to get all the above forms / documents in place relating to registration.
Hope you find the above information useful.
(The author is a CA in practice at Chennai and can be contacted at caaravindsubramanyan@gmail.com, Mobile – +91 98847 12930)
Author Bio
Why TAN is required for a buyer if the Seller has applied form 13 for lower/No tax deduction and AO (Income tax department) has issued the certificated based on form 13?
if buyer deduct tds on advance amount for purchase of property and seller claimed it but did not recognize advance amount as sale consideration. What should i do if return is defective because of above reason
If the NRI gives a power of attorney to his brother anethe Indian resident brother sales the property, what should be the TDS to be deducted by the buyer ? As non resident rate or resident rate of 1/. ?
In a Sale of Immovable Property, whether it will trigger a Capital Gain
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I bought a under construction flat whose value without GST is below Rs 50 Lacs, but value exceeds Rs 50 Lacs with GST.
Should I deduct 1% TDS ?
There is a CBDT circular which clarifies that TDS is to be deducted on amount excluding GST, if GST is indicated separately. While this circular clarifies the ‘quantum’ on which 1% TDS should be applied, but it is not clear whether or not GST should be excluded from consideration value for the purpose of Scope TDS applicability (Rs 50 Lakhs threshold).
Could you please share your opinion with a case law or guidance note (if any) issued on this matter.
If the property is co owned by a Resident and Non Resident which section of TDS is to be applied i.e., under Section 194(1) or 195 of IT Act.
if being non resident seller, neither buyer nor seller knew this complicated procedure and have deducted only 1 percent and seller have deposited the capital gains amount in 54EC bonds after indexation. Is it O K. or something else is required to be done. Only going through your article we came to know all this, our intention is only to save tax by depositing 54 EC bonds. Please advise now if any action to be taken..
Thank you for the Article… Very useful. One query.. The article states “No TDS if the agreegate amount of payment in the FY is less than 50 lacs”. Thus it mean, if property value is Rs 55 lacs, and in first financial year Rs 30 lacs is paid and in next financial year the balance Rs 25 lacs is paid, then TDS will not be applocable ? please clarify