The government wants to collect its revenue at the earliest occasion. One of the methods deployed by the income tax department is to require the payer of the income to deduct tax at some pre specified rates at the time of earliest of payment or credit of the income. It also ensures plugging revenue leakage to some extent by collecting data of the recipient of the income in data base of income tax department. Real estate transactions of purchase and taking on rent of any property are also covered under these provisions of Tax Deduction at Source (TDS). The income tax laws have different provisions for TDS for resident taxpayers and non resident tax payers. Let us discuss these provisions threadbare as applicable when the seller or the landlord is a resident of India. The residential status of the buyer is not relevant for this purpose. It may be pointed out that it is the buyer or the tenant who has to comply with the TDS provisions.
TDS for payment of rent on property taken on rent
Under the tax laws a tenant is under an obligation to deduct TDS before paying or crediting the rent to a resident landlord under certain circumstances. The TDS provisions for rent can be divided in two categories.
First category of tenants who are required to deduct tax include all the persons except Individuals or a Hindu Undivided Family and who have taken the property on rent from a resident. This category will thus include all the Companies, Limited Liability Partnerships, Partnership Firms, Charitable Trust, Cooperative Societies etc. whether engaged in any business or not. This category also includes individuals and HUF carrying on business or profession and whose books of accounts were required to be audited, under the income tax laws due to their turnover or gross receipts exceeding certain specified limits, during the previous year. In both the cases the tax is required to be deducted @ 10% if the aggregate of rent payable to a person exceeded Rs. 1.80 Lakhs during a year. This threshold limit has been enhanced to Rs. 2.40 lakhs from 1st April 2019. In case of jointly owned properties the provisions will apply only if share of the rent likely to be credited/paid to the owner exceeds the threshold limit.
It is the responsibility of the tenant to comply with the TDS provisions. Just because tax has been deducted the landlord is not absolved of its responsibility. The landlord has to pay tax on his income including the rent received after adjusting the tax deducted by the tenant if there is further tax liability. This category of deducutors are required to obtain the tax deduction account number (TAN) for payment of tax and filing of the TDS returns.
The Second Category of tenants who are required to deduct tax at source are those Individuals and HUFs who have taken a property on rent whether for business purpose or for personal purpose provided the amount of rent paid by them exceeds Rs.. 50,000 for a month or part of the month and the landlord is a resident tax payer. The tenant is required to deduct tax 5% of the rent in such case. These provisions will apply if the subject matter of rent is a building part of the building or a land or both. Though in the earlier category of tenants are required to obtain tax deduction account number (TAN) and file TDS returns, the tenants covered under this second category are not required to obtain TAN number. For the purpose of payment of TDS and ensuring its credit in form 26AS of the landlord, the buyer is required to furnish his PAN as well as PAN of the landlord in the challan cum TDS return form. So unless the tenant has a valid PAN, he can not comply with this provision. The tenant in this case is required to deposit the tax so deducted within a period of thirty days from end of the month in which the tax is deducted.
These provisions will apply whether the rent is being paid to landlord or a tenant who has sublet the property let out to him. The tax is required to be deducted during the month of March or in the last month of tenancy in case the tenancy period ends earlier. In no case the amount of TDS shall exceed the rent for the month of March in case the tenant is required to deduct tax at higher rate under Section 206AA in case where the recipient of income does not have PAN.
TDS at the time of purchase of property
Since any profit on sale of your property becomes taxable under the head “Capital Gains” the government has introduced TDS provisions on sale transactions of property as well in respect of big ticket transactions of the value of the property Rs. fifty lakhs or more. In case the value exceeds the threshold amount the buyer is required to deduct TDS 1% of the property value before payment/credit of sale consideration. The buyer is required to deposit the amount of the TDS to the credit of the central government within 30 days from the end of the month in which the tax is so deducted. The transaction will cover all the transactions of land and or building. However the transactions of sale of an agricultural land are outside the scope of TDS.
In case of sale of property held in joint names, in my opinion, the limit of 50 lakhs will be computed with reference to the total consideration of the property and not with respect to each of the joint owners. So in case the property is bought from two joint and the sale consideration is 60 lakhs, the buyer will have to deduct tax from both the seller even though the individual share is only 30 lakhs as the value of the consideration of the property exceeded the threshold limit. Likewise if the property is bough in joint names for the 60 lakhs both the buyers will have to deduct the TDS as the total consideration of the property exceeded the threshold limit even though share of individual buyer is less than that limit.