How to File TDS on the Sale of Property

Planning to purchase a dream house? The Finance Bill 2013 proposed that the buyer of an immovable property worth ₹ 50 Lakh must pay the withholding tax. The taxation system is a significant part of any property transaction taking place in India. One applicable tax under Section 194-IA is the TDS on any immovable property like buildings and land. Before paying the seller, the buyer must deduct TDS at the time of buying the property. According to the rules, the buyer must deduct the TDS and deposit it in the government treasury.

Let’s dive deeper into TDS on sale of property, things to consider, how to calculate the TDS amount, and other important information.

Section 194IA: TDS on Immovable Property Sale

To keep extensive black money usage under check involving the sale and purchase of immovable properties, the Indian government has introduced guidelines where the buyer must deduct TDS while paying the property’s price to the seller. Under Section 194IA of the Income Tax Act, a buyer must deduct 1% TDS from the sale amount. However, this deduction is necessary only if the property price is worth ₹ 50 Lakh or more. Moreover, the section covers all types of residential and commercial properties and land, except agricultural land.
Read Also: TDS on Purchase of Property: All You Need to Know

The buyer must deduct TDS on sale of land or property at the time of payment or when the seller’s account receives the payment, whichever is earlier. Let’s look at the Section 194IA requirements:

• The buyer is responsible for the TDS deduction on the property, not the seller.

• According to the section, no TDS is applicable if the transaction worth is less than ₹ 50 Lakh.

• The buyer must deduct TDS on the total sale amount, not on the amount above ₹ 50 Lakh. For instance, if the property’s price is ₹ 90 Lakh, the TDS will apply to the entire amount instead of the excess ₹ 40 Lakh.

• If the buyer makes the payment in instalments, the TDS will be deductible on each instalment.

• Since 2019, payments for car parking, maintenance fees, advance fees, club membership, electricity fees, etc., have also become a part of 'consideration for immovable property'. That means these charges will also be a part of the TDS amount calculation.

• Section 194IA requires the PAN cards of both the buyer and the seller to make a transaction successful.

• If the seller’s PAN is not accessible, the TDS rate increases to 20%.

• The buyer must use Form 26QB to pay TDS on sale of immovable property within 30 days of the TDS deduction.

• The buyer must obtain Form 16B and issue it to the seller.

Read Also: Confused between Income Tax and TDS? Know the Differences!

Things to Consider

Here are a few things to consider for TDS on sale of immovable property:

Property Type: TDS applies for all properties under 194IA, except agricultural land. That means the buyer must pay TDS for all residential and commercial properties. It is also applicable whether the property is just a flat, building, or vacant land.

TDS Amount: TDS is deductible on the total consideration amount towards the property transfer at the prescribed rate. For instance, if the consideration sale amount is ₹ 90 Lakh, the TDS is deductible on the entire ₹ 90 Lakh.

TDS Rate: Currently, the applicable rate of TDS deduction is 1% on an immovable property transfer.

Low TDS Rate: In other cases, the TDS deduction has a lower return rate where it is subject to specified conditions. However, there are no such provisions for TDS on sale of property. Hence, the buyer cannot apply for a lower rate of deduction to the Income Tax Department.

Time of TDS Deduction: TDS deduction is applicable at the time of sale payment. Whether the buyer makes the payment in cash, cheque, DD, or any other payment mode, they must deduct the TDS at the time of settlement or when it is credited to the seller's account.

TDS on Home Loan: If they borrow a Home Loan to purchase the property, the TDS is deductible at the time of payment to the seller and not at the time of EMI payments to the lending institution. Furthermore, although the finance provider directly pays the seller, it is the buyer’s responsibility to ensure TDS deduction.

Payment in Instalment: As per the Income Tax Act, the TDS deduction is applicable at the time of sale payment. If the buyer pays the property’s price in instalments instead of a lump sum, the TDS is deductible at the time of each instalment payment.

Multiple Buyers: If multiple buyers purchase a property jointly, each buyer must pay the TDS from their share of sale consideration. However, the property’s total value will be considerable for determining TDS provisions. For instance, if the property value is ₹ 90 Lakh and two buyers are purchasing it jointly, the TDS is not applicable individually. Both buyers must deduct the TDS according to the property’s sale consideration.

TAN Number Requirement: The property buyer is exempt from obtaining a TAN number for TDS deduction and deposit.

PAN Number Requirement: Both the property buyers and sellers must quote their PAN numbers in the property transactions.

Capital Gains for the Seller: TDS is deductible irrespective of the capital gain amount that the seller earns. Therefore, even if the capital gain tax is low, 1% TDS is still deductible. However, they can claim a refund while filing an income tax return in such a case.

Calculation of TDS amount

The TDS amount calculation depends on the sale amount payable to the seller, excluding GST/VAT and service tax. For instance, if the sale amount is ₹ 90 Lakh, VAT is ₹ 90,000, and service tax is ₹ 3 Lakh. Therefore, the total payable amount will be ₹ 93,90,000, and the TDS amount will be 1%, i.e. ₹ 90,000. Conversely, for NRI sellers, the above Section 194IA is not applicable.

If the property’s seller is a Non-Resident Indian, section 195 will be applicable. According to this section of the Income Tax Act, the TDS is deductible for payment to NRIs, including their income through capital gains. For such transactions, TDS is deductible at the time of payment at the prescribed rates under the section. It is 30% if the seller sells the property within two years of purchase and 20% after that.
Read Also: Form 16 in ITR - Everything you need to know

How to Pay TDS Through Challan 26QB

The buyer must fill challan 26QB to pay the TDS deducted under section 194IA within seven days of the month’s end. However, if the TDS is deducted for March, the buyer must deposit it by April 30. Furthermore, if the government deducts the TDS, the buyer must deposit it on the same day of the TDS deduction. After depositing the TDS with form 26QB with the central government, they must forward the TDS certificate to the seller within 10-15 days of the TDS deposit. Follow these steps to pay TDS through challan 26QB:

• Log in to the official NSDL website at www.tin-nsdl.com

• Click on ‘TDS on Sale of Property’.

• Select Form 26QB Payment of TDS on sale of property.

• Fill in the necessary details, including the applicable tax (income tax for individual and corporation tax for corporate taxpayers), financial year (the year for TDS deduction), the status of the seller, payee, and transferor (resident or non-resident), and other details like property details, name, address, and PAN numbers of both parties, etc.

• Click on Proceed

• A confirmation screen will appear.

• Double-check the details before confirming.

• Note the acknowledgement number appearing on the screen.

• There are two options on the same screen: “Print form 26QB” and “Submit to Bank”.

• Click on Print to take the form's printout, or click “Submit to Bank” to make an online payment.

• If the buyer wants to avoid making the TDS payment online, they must take the challan 26QB printout and submit it physically to the bank branch.

• After paying the TDS through challan 26QB, a challan counterfoil containing the payment details and CIN number will appear. That will be proof of successful payment.

Steps to Download Form 16B

• Visit the TRACES portal at www.tdscpc.gov.in and log in as a taxpayer using the buyer’s PAN number.

• Browse through the ‘Downloads’ menu and select ‘Form 16B (for buyers).

• Enter the property transaction-related details, including the assessment year, seller's PAN, and acknowledgement number.

• Click on Proceed.

• Click ‘Submit Request’ on the confirmation screen that appears.

• Submit the download request.

• A success message with a request number will appear.

• Click ‘Requested Downloads’ to download form 16B.

• Search using the request number.

• Select the request row.

• Click on ‘HTTP download’ to download the form.

Conclusion

TDS on sale of property is applicable on the purchase of any property, including a residential or commercial building or piece of land. However, it does not apply to agricultural land. While paying TDS is a major responsibility, the process becomes fulfilling if the buyer knows the procedure and the tax benefits of timely payment. Moreover, benefits on Home Loan interest and principal payments further increase the advantage.

Frequently Asked Questions

1. What is TDS on property sale?

According to the Finance Bill 2013, any individual buying an immovable property worth over ₹ 50 Lakh must deduct 1% TDS from the sale amount.

2. Who is responsible for deducting TDS?

It is the buyer’s responsibility to deduct the TDS and deposit it in the government’s treasury.

3. Are there any exemptions from TDS on property sales?

If the seller’s capital gain is low, they may claim a refund when filing their ITR for the year.

4. How is TDS calculated on joint property sales?

In case of a joint property purchase, each buyer must fill out form 26QB separately for all buyer-seller combinations according to their respective shares. For instance, if a transaction has two sellers and one buyer, they must fill out two forms. Similarly, four forms will be necessary to calculate the TDS if there are two sellers and two buyers.

5. What are the consequences of non-compliance with TDS rules?

Non-compliance with TDS rules can have serious consequences, including hefty fines and imprisonment from three months to seven years with applicable penalties.