When purchasing a property in India, understanding tax implications is crucial. One key aspect is Tax Deducted at Source (TDS), a mechanism aimed at ensuring timely tax collection on high-value transactions. Applicable under specific conditions, TDS on property purchases involves buyers deducting a portion of the transaction value and depositing it with the government. This article explains everything you need to know about TDS on property purchases, including rates, exemptions, calculation methods, and filing processes, to help you stay compliant and avoid penalties.
What is TDS?
Tax Deducted at Source (TDS) is a system where the payer deducts a specified percentage of tax at the source before making payments. In the context of property transactions, TDS ensures that a portion of the property value is collected as tax at the time of purchase, thereby preventing evasion. It applies to property purchases exceeding Rs 50 lakh and is calculated on the sale consideration amount. Buyers are responsible for deducting and depositing this tax with the government, making it a critical step in property transactions.
TDS rate on property purchase
For property transactions exceeding a specified threshold, buyers must deduct Tax Deducted at Source (TDS) before transferring payment to the seller. Currently, the TDS rate is typically 1% of the property’s value for transactions above the prescribed limit. The deducted amount is then submitted to the government by the buyer.
How to calculate TDS on purchase of property?
TDS is deducted based on the stamp duty value of the property if it exceeds the sale price. If the property’s value surpasses Rs 50 lakh, TDS is applied to the entire amount, not just the amount exceeding Rs 50 lakh. For instance, if Mr. A buys a property from Mr. B for Rs 60 lakh, but the stamp duty value is Rs 65 lakh, TDS will be calculated on Rs 65 lakh. At a rate of 1%, TDS would amount to Rs 65,000, and Mr. A would pay Rs 59.35 lakh to Mr. B after deducting TDS.
Exemptions from TDS on purchase of property
TDS is applicable to most purchases of immovable property, which includes land or buildings, except for agricultural land. However, there are specific scenarios where TDS on property purchase is not required:
- No TDS is deducted if the property’s consideration or stamp duty value is less than Rs 50 lakh.
- TDS does not apply when an immovable property is transferred between NRIs via inheritance or gift.
- If the property is purchased from the central/state government or any authority established by them, TDS is not applicable.
- TDS is exempt when buying property from recognized financial institutions or housing finance companies.
- If buying from an Indian resident relative, and the consideration is below Rs 50 lakh with stamp duty charges under Rs 50,000, TDS is not required.
- Transfers of agricultural land are exempt from TDS.
How to pay TDS on property purchase?
To pay TDS on property purchases, follow these steps:
- Access the income tax portal: Log in to your account on the official Income Tax website.
- Select the payment option: Go to the ‘E-file’ section, choose ‘e-pay Tax,’ and proceed with ’26QB (TDS on sale of property)’ under the ‘New Payment’ section.
- Provide required details: Complete the forms by entering information about the buyer and seller, tax deposit details, property specifics, amount paid or credited, contact information, addresses and the seller’s residential status.
- Choose payment mode: Opt for ‘Pay Later’ or ‘Pay Now’ to complete the transaction.
- Make the payment: If selecting ‘Pay Now,’ finalise the payment. A Form 26QB acknowledgment will be generated for download.
- Generate TDS certificate: After processing Form 26QB, log in to the TRACES portal as a taxpayer to generate the TDS Certificate.
How to download form 26QB for paying TDS on property purchase?
To download Form 26QB, follow these steps:
- Log in: Access the official Income Tax website and log in to your account.
- Navigate to payment history: Go to the ‘E-file’ section, select ‘e-pay taxes,’ and then choose ‘Payment history.’
- Locate the entry: If Form 26QB has been filed, an entry will appear under the payment type labeled ‘TDS on Sale of Property (800).’
- Download the form: Click on the ‘Action’ option to download the receipt or statement of Form 26QB.
Details required for TDS payment
Every individual responsible for deducting TDS must usually have a Tax Deduction Account Number (TAN). However, for TDS on property purchases, buyers are exempt from this requirement. While completing the TDS form, buyers must provide key details, including the names, addresses, and contact information of both parties, along with the property’s complete address, the date of agreement and payment, and the total property value. Once these details are submitted and the home loan eligibility criteria are met, buyers can pay the TDS either physically at the financial institution or conveniently online via net banking.
Documents required for TDS filing
Typically, you will need to have documents containing the following information:
- Category of PAN for the buyer and the seller
- PAN details of both the buyer and the seller
- Full names of both parties
- Accurate address of the purchased property
- Complete addresses of the buyer and seller
- Payment details, including the amount paid or credited
- Date of payment or credit
- Mode of payment used
- Date of the agreement or booking
- Applicable TDS rate and the amount deducted
Consequences of delaying or defaulting on paying TDS on property purchase
Delaying the payment of TDS on property purchases can result in several financial consequences:
- Interest penalty: If TDS is not paid within the due date, the buyer incurs an interest penalty of 1% per month or part of a month, calculated from the deduction date until payment. For instance, if TDS was deducted on January 15, 2023, and paid on March 10, 2023, interest for two months (January and February) at 1% per month would apply, equating to Rs 1,000 per Rs 1,00,000 of TDS.
- Late fee: Buyers also face a late fee of ₹200 per day for delays in submitting Form 26QB. However, this fee cannot exceed the TDS amount. For example, if a buyer delays filing Form 26QB by 10 days for a TDS amount of ₹50,000, the late fee would be ₹2,000 (₹200 x 10 days).
- Penalty: Under Section 271H of the Income Tax Act, the income tax department may impose a penalty ranging from ₹10,000 to ₹1,00,000 for non-payment or delayed payment of TDS. However, this penalty can be avoided if the buyer clears the TDS, interest, and late fee within one year from the due date of filing Form 26QB.
Process of registration for a TDS certificate
Here’s a streamlined explanation of how to register for a TDS (Tax Deducted at Source) certificate:
- TAN registration: Obtain a Tax Deduction and Collection Account Number (TAN) if you don’t already have one. Apply online via the NSDL website to fulfill this prerequisite for deducting TDS.
- TDS deduction: Deduct TDS at the specified rates based on the transaction type, such as salary, rent, or professional fees.
- Filing TDS returns: File quarterly TDS returns through the Income Tax Department’s e-filing portal. Use Form 24Q for salary, Form 26Q for non-salary payments, and Form 27Q for payments to non-residents.
- Generating TDS certificates: Once the TDS returns are filed, the Income Tax Department generates TDS certificates, such as Form 16 for salary and Form 16A for non-salary payments, which can be downloaded by the deductor.
Process of downloading a TDS certificate
Here’s how you can download the TDS certificate:
- Login to TRACES: Visit the TRACES (TDS Reconciliation Analysis and Correction Enabling System) website and log in using your TAN credentials.
- Navigate to ‘Download Certificates’: Once logged in, go to the ‘Download Certificates’ section under the ‘Statements/Forms’ tab.
- Select certificate type: Choose the appropriate certificate type (Form 16 for salary or Form 16A for non-salary payments) and select the relevant financial year.
- Download certificate: After selecting the details, click on the ‘Download’ button to retrieve the TDS certificate in a ZIP file format.
- Extract and save: Extract the ZIP file and save the TDS certificate for your records and future use.
Key things to know about TDS on property purchase
When purchasing or selling immovable property like land or buildings, certain tax obligations must be met under Section 194-IA:
- TDS applicability: The buyer is required to deduct 1% of the total sale consideration as Tax Deducted at Source (TDS) during the transaction. This rule applies only if the property’s value is Rs 50 lakh or more. No TDS is needed for properties priced below this threshold.
- TAN not needed: Buyers are not obligated to obtain a Tax Deduction Account Number (TAN) for deducting and depositing the TDS. However, the Permanent Account Numbers (PAN) of both buyer and seller must be furnished while filing the TDS.
- Transactions with multiple parties: In cases where there are multiple buyers or sellers, each buyer-seller pairing must complete a separate Form 26QB for their respective share in the transaction.
- Payments in installments: If the property is being paid for in parts or through scheduled installments, the TDS must be calculated and deducted with every installment, based on the amount paid.
- Issuing the TDS certificate: Once the TDS has been deposited, the buyer is required to provide the seller with Form 16B—a TDS certificate—within 15 days of making the payment. When there are multiple buyers, each must issue their own TDS certificate for their respective share.
Housing.com POV
Understanding and complying with the TDS requirements on property purchases is crucial for a smooth and hassle-free real estate transaction in India. From calculating the correct TDS amount to ensuring timely payments, it is essential for buyers to follow the prescribed steps to avoid penalties and legal consequences. By familiarising yourself with the exemptions, rates, filing processes, and documentation involved, you can efficiently manage your TDS obligations. Delays in TDS payment can lead to significant penalties, so it’s important to stay on top of the deadlines. Additionally, the process of obtaining and downloading the TDS certificate adds an extra layer of transparency and record-keeping. Following these guidelines ensures compliance, safeguarding you from unnecessary financial burdens and legal issues during the property purchase process.
FAQs
What is the purpose of TDS on property purchase?
TDS on property purchase ensures the timely collection of tax by the government on high-value transactions. It reduces the chances of tax evasion and ensures that tax is paid at the point of transaction.
Who is responsible for deducting TDS on property transactions?
The buyer of the property is responsible for deducting and depositing the TDS with the government. They must ensure that TDS is deducted at the prescribed rate before making the payment to the seller.
Is there any TDS exemption for NRIs purchasing property in India?
TDS is applicable to NRIs as well when purchasing property in India. However, there are exemptions if the transaction involves agricultural land or the property is below Rs 50 lakh in value.
Can the TDS amount be adjusted against my tax liability?
Yes, the TDS deducted on property purchases can be claimed as a tax credit while filing your annual income tax return. It will be adjusted against your total tax liability.
How can I rectify an error in Form 26QB after filing?
If you have made an error in Form 26QB, you can correct it by revising the form. Visit the Income Tax portal and file a rectification request. You may also need to update the TRACES portal.
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