TDS on Sale of Immovable Property

Hello, in this post, we will discuss the TDS on sale of immovable property. We will cover the following:

Introduction

Section 194IA of the Income Tax Act says that when a buyer buys immovable property (i.e., a building or part of a building) which is more than Rs 50 lakhs, the TDS has to be deducted at the time of payment.

The TDS deduction is not applicable for sale of the agricultural land. The payment made for other services like a club membership fee, car parking fee, electricity and water facility fee, etc. is also included when calculating the amount paid for the property.

The exception to the Act:

  • The provisions of this section are not applicable where section 194LA regarding compulsory acquisition is applicable.
  • If the seller is non-resident or NRI then TDS deduction should be under section 195 on the basis of capital gains and not under this section
  • For under-construction properties, TDS deduction should be in instalments paid on or after 1st June 2013. No TDS applies to the instalments paid before 1st June 2013.

TAN is not necessary for the buyer or purchaser of the property. But the buyer is necessary to have his/her PAN and seller’s PAN details.

Rate of TDS deduction

The buyer deducts TDS at the rate of 1% of the total sale of the property and deposits it to the Government. No TDS deduction happens if the sale of the property is less than Rs. 50 lakhs.

In the case of instalment-based payments, TDS deduction has to be made to each payment in instalment. Tax is to be paid on the entire sale amount of the property.

In other words, when the amount is Rs. 50 lakhs or more, TDS gets deducted from the whole amount, not from the amount exceeding Rs. 50 lakhs.

For example, if you have bought a house at Rs. 60 lakh, you have to pay tax on Rs. 60 lakh and not on Rs.10 lakh (i.e 60 lakh – 50 lakh). This is applicable even when there is more than 1 buyer or seller.

PAN of the seller is mandatory. If not available then the TDS deduction rate is increased to 20%.

Deduction and Payment of TDS

The tax deduction is necessary at the time of credit of such sum to the account of the payee or at the time of payment whichever is earlier. The date of registration, agreement or contract is irrelevant for deciding the time of payment of TDS.

If the purchase value is greater than Rs. 50 lakhs then TDS deduction should be from the first instalment itself and for every instalment. The purchaser should not wait for the aggregate instalment amounts to exceed Rs. 50 lakhs.

The deduction of TDS from the final instalment or after exceeding Rs. 50 lakhs is not right.

If the purchaser avails a loan from a bank and the bank pays to the seller, then it is also a kind of payment. TDS deduction is necessary on the date of such payment to the seller. However, the date of payment of EMI by a buyer to the bank is irrelevant.

Periodicity for TDS deposit and filing Form 26QB

Form 26QB is an online form in the TIN website for furnishing information about TDS on sale of immovable property.

As per the CBDT notification no. 30/2016 came on April 29, 2016, the due date for the payment of TDS on transfer of immovable property has been extended to 30 days (from existing 7 days) from the end of the month in which the deduction is made.

The purchaser of the property has to file Form 26QB (a Challan-cum-declaration statement) within 30 days from the end of the month in which payment is made.

No separate filing of TDS returns in respect of such deduction. Form 26QB has to be filed only through online

Responsibility of the Seller of the Immovable Property

  • Provide your PAN to the purchaser to update the information regarding TDS to the IT Department.
  • Verify deposit of taxes deducted by the purchaser in the Form 26AS Annual Tax Statement.

Penalty for Non- Deduction/deposit of TDS deducted

Interest on Late Deduction:

TDS is deducted by the buyer before the due date and if not the interest rate is 1% per month on the amount not deducted.

If TDS is deducted but not deposited to the government by the buyer then the interest rate is 1.5% per month on the amount deducted.

Interest on Late Deposit:

A penalty up to Rs. 1Lakh can be levied for late deposit of TDS by the income tax department.

Penalty for late filing of Form 26QB:

Delay to file Form 26QB will attract a late fee of Rs. 200 per day. But this penalty should not be more than TDS amount.

Other Points

  • TDS deduction should be for each instalment. Therefore, for each deduction a separate filing of form 26QB is necessary.
  • Form 26QB is a file for the one-buyer-one-seller combination. E.g., if there are 1 buyer and 2 sellers, then file two Form 26QBs. Similarly, if there are 2 buyers and 2 sellers then file four Form 26QBs.
  • No need for obtaining TAN of the person who is necessary to deduct tax in this section. So, only PAN of the buyer/deductor is necessary for filing form 26QB.

Form 16B

The deductor (Buyer of property) issue Form 16B (TDS certificate) to the deductee (Seller of property) in respect of the taxes deducted and deposited into the Government.

It can be then downloaded from the website of the Centralized Processing Cell of TDS (TRACES).

The buyer after depositing TDS to the government gives a TDS certificate (Form 16B) to the seller. It will be available in 10-15 days after depositing the TDS.

Agricultural Land under Section 194IA

Conditions for qualification as agricultural land are:

  • If it comes under the jurisdiction of Municipality or Cantonment Board.
  • The population of not less than 10,000.
  • If it is situated in any area within below given distance measured aerially.

The land will not be treated as agriculture land if:

Population of the Municipality Distance from Municipal limit or Cantonment Board
More than 10,000 but does not exceed 1,00,000 Within 2 km
More than 1,00,000 but does not exceed 10,00,000 Within 6 km
Exceeding 10,00,000 Within 8 km

With that, we have come to the end of TDS on Sale of Immovable Property. If you have any questions, drop them in our comment section below.