While planning to purchase a property, being aware of the tax implications is essential. One of the most significant aspects to consider is TDS on the purchase of property. In 2013, the Income Tax Department introduced Section 194-IA under the Income Tax Act 1961, which mandated the deduction of TDS payment for property purchases.
TDS stands for Tax Deducted at Source, a mechanism that requires the buyer to deduct a percentage of the property purchase price as tax and deposit it to the government. If the property is worth over Rs 50 Lakh, the buyer must pay 1% TDS on the purchase. Since the real estate sector is highly prone to tax evasion, the government makes the buyer liable to deduct 1% TDS when paying the seller.
Understanding the TDS rules and ensuring compliance is daunting for an individual home buyer. Here is a look at some important TDS rules applicable at the time of purchasing an immovable property.
Read Also: How to File TDS on the Sale of Property?
When will your TDS be Deducted?
TDS is deductible when the property amount is worth more than Rs 50 Lakh. However, TDS on land purchase is not deductible if the buyer intends to use it for agricultural purposes. The buyer must deduct it when paying the seller and deposit it to the government before the 7th of the coming month.
Is TDS Deductible on Rental Property?
The Finance Act 1994 added Section 194-I, which included TDS on rent for all HUFs and individuals not covered under the current provisions. If the monthly rent exceeds Rs 50,000, each HUF and individual must pay 5% TDS to the government. Individuals or HUFs not occupying the property for commercial purposes must deduct 5% of the rent as TDS if the rent is more than Rs 50,000 per month. For firms, companies, trusts, and associations, the TDS deductible is 10%.
According to the new rules, even retired individuals must pay TDS if their rent amount exceeds Rs 50,000 per month. It includes those who earn rent from their property and those not in a profession or business. Apart from residential and commercial properties, the TDS provision also applies to renting hotel rooms, wedding venues, community halls, etc.
Read Also: Confused between Income Tax and TDS? Know the Differences!
TDS Rate on Purchase of Property
TDS payment for property purchases is mandatory for every property being sold or purchased. When paying the sale amount, the buyer must subtract the TDS amount before paying the remaining money to the seller. The buyer can remit the deducted TDS amount at the income tax office.
The deductible TDS amount depends on the seller’s location and applicable rules. It is 1% of the sale price for sellers residing in India. For NRI sellers, the TDS amount depends on the amount that the seller receives. Therefore, the seller’s residential status is crucial in calculating the TDS on property purchase. However, the buyer's residential status does not matter. Remember, the TDS applies only to properties worth Rs 50 Lakh or more.
Points to Remember Regarding TDS on Purchase of Property
Here are a few points to remember regarding TDS on the purchase of property:
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The buyer must deduct 1% TDS on a property purchase above Rs 50 Lakh and deposit it to the government.
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It is the buyer’s responsibility to deduct TDS, not the seller’s.
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If the buyer fails to perform this duty, they will be liable for penalties from the authorities.
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The buyer must fill out Form 26QB for TDS credit.
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If more than one buyer and seller are involved, each party must fill out separate forms for the transaction.
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Both parties’ PAN details are mandatory for the transaction to be completed.
Exemptions from TDS on Purchase of Property
Although TDS on the purchase of property is applicable for all property transactions, there are certain exemptions the buyer may enjoy. Here is a list of exemptions from TDS on purchase of real estate in India:
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A property purchase is exempt from TDS if its value is less than Rs 50 Lakh and the buyer intends to use it for residential construction purposes. The buyer must provide the seller with a Self-Declaration Affidavit stating that they are purchasing the property to construct a residential house.
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The property buyer is exempt from TDS if they purchase a property from a non-resident who is not a company. To avail of that exemption, the buyer must provide the seller with Form 15CB issued by a chartered accountant or accountant.
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The buyer is exempt from TDS deduction if the buyer purchases it from a foreign company. Form 15CA issued by a chartered accountant or accountant is necessary to claim this TDS exemption.
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TDS exemption is applicable if the buyer purchases the property from a charitable trust or religious body. One must furnish Form 16A issued by a chartered accountant or accountant certifying the exemption.
What is the Due Date for TDS on the Property?
The buyer must pay TDS on purchase to the government by the 7th date of the following month after deduction. That means the government must receive the TDS amount deducted in March by April 7 of the same year. Failure to do that may attract interest charges or imprisonment of up to seven years.
Read Also: TAN Full Form: Meaning, How to Apply for TAN Number
List of Required Documents for TDS on Purchase of Property
The buyer must provide the following documents for TDS payment for property purchase:
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TDS form
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PAN numbers of the buyer and seller
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Buyer’s and seller’s PAN category
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Both parties’ identity proof
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Complete addresses of both parties
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Correct and full address of the property in question
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Information about the credit or payment
How to Calculate TDS on Purchase of Property?
Follow these steps to calculate TDS on the purchase of property:
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Determine the property value that the buyer and the seller agree upon.
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Calculate 1% of the value to compute the TDS amount. For instance, the TDS deduction for a property worth Rs 75 Lakh is Rs 75,000.
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Verify the seller’s PAN details before making the payment. TDS is deductible only if the seller has a PAN. If not, the TDS deduction rate will be 20%.
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Pay the TDS and obtain a TDS certificate.
An online TDS calculator makes the calculation process much easier and faster for real estate acquisition.
Conclusion
Here is everything one needs to know about TDS on property purchase while purchasing a property. After acquiring the desired property, the buyer can borrow a Mortgage Loan against the property or a Personal Loan against agricultural land from Hero FinCorp to cover their planned or unplanned expenses.
Frequently Asked Questions
1. How do I deposit 1% TDS on property purchase?
To deposit 1% TDS on property purchase, you must fill and submit Form 26QB online, make the TDS payment through card or net banking, and download the TDS certificate in Form 16B from the TRACES website.
2. Can TDS be claimed on property purchase?
Yes. The seller can claim the TDS amount deducted at the income tax office.
3. Is TDS refundable?
Yes, the seller can claim a TDS refund when filing their ITR.
4. What is the TDS rate for immovable property?
The TDS rate for immovable property is 1% of the property's value.
5. What is the TDS rule for property purchase?
TDS on property purchase is deductible on any property worth Rs 50 Lakh or more. The buyer is responsible for deducting the TDS while paying the seller. Failing to do so will attract penalties and imprisonment.
