Section 194IA – TDS on Sale of Property

Section 194IA – TDS on Sale of Property

Tax Deducted at Source (TDS) is applicable on the sale of immovable properties, such as land and buildings, under Section 194IA. When purchasing such property, the buyer is required to deduct the tax before making the payment to the seller. This article explores the TDS rate applicable under Section 194IA, identifies who is responsible for the deduction, and explains the procedure for filing TDS on property sales.

Need help with TDS return filing? Let IndiaFilings simplify the process for you. Get expert assistance today and ensure full compliance with Section 194IA.

Section 194IA of Income Tax Act – At a Glance

Section 194IA of the Income Tax Act focuses on the Tax Deducted at Source (TDS) provisions applicable to transactions involving immovable property. This section mandates that anyone paying a resident transferor for immovable property must deduct tax at the source. The rate for TDS deduction under this section is specified within the act. Additionally, Section 194IA requires the payer to furnish a statement detailing the transaction, including the payment and the tax deducted, which must then be submitted to the government. This ensures transparency and compliance with tax obligations during property transactions.

Understanding TDS on Property Sales Under Section 194-IA

Implemented on June 1, 2013, Section 194IA of the Income Tax Act mandates the deduction of TDS for transactions where the value of the property exceeds Rs 50 lakhs.

• Under Section 194IA of the Income Tax Act, when purchasing immovable property valued at Rs 50 lakhs or above, the buyer is mandated to deduct 1% as TDS from the transaction amount. This TDS must be deposited with the Central Government using Form 26QB within seven days from the end of the month in which the deduction is made.
• Both the buyer and the seller must provide their PAN details, which are crucial for completing the online form available on the NSDL website. After the TDS is deposited, the buyer should obtain Form 16B from the Centralised Processing Cell (TDS) website and provide this certificate to the seller as proof of tax deduction.

When is TDS on Property Sale Required?

TDS must be deducted for all transactions involving the sale of immovable property, which includes land or buildings, except agricultural land. However, there are specific situations where TDS on property purchases is not required:

• When the immovable property being transferred is rural agricultural land.
• When the property is being compulsorily acquired by the government under any law.
• When the total consideration for the property purchase is less than Rs. 50 lakhs.

TDS Rate on Property Sale  

• The TDS rate applicable on the sale of immovable property is 1% of the total transaction value. It is crucial to note that it is the buyer’s responsibility to deduct the TDS, not the seller’s. This standard rate applies when the property seller provides their Permanent Account Number (PAN).
• If the seller does not have a PAN or fails to quote it during the transaction, the TDS rate increases significantly to 20%. Importantly, this TDS rate does not include any additional charges like surcharge or cess, making it a straightforward deduction from the transaction value. The deduction must be made at the time of payment to the seller,

Key Aspects of Section 194IA –  TDS on Sale of Property

The following are essential requirements and considerations under this section194IA :

• Threshold for Deduction: TDS deduction is mandatory only if the total purchase value is Rs 50 lakh or more.
• Deduction on Installments: If the payment is structured in installments, TDS must be deducted on each installment paid.
• No Need for TAN: The buyer does not need to obtain a Tax Deduction Account Number (TAN) but can use their PAN to deposit the TDS.
• Timing of Deduction: TDS should be deducted at the time of each payment to the seller, including instalment payments.
• TDS Payment and Documentation: TDS must be deposited using Form 26QB within 30 days from the end of the month in which the TDS was deducted. Subsequently, the buyer should obtain and issue Form 16B to the seller, which serves as a TDS certificate, typically available 10-15 days after the TDS deposit.

Note: Section 194IA imposes responsibilities primarily on the buyer, including the need for TDS deduction at source during each payment instalment. Important to note is the inclusion of additional costs from 1st September 2019, such as club membership fees and maintenance fees, which should be factored into the total transaction value for TDS calculation. For example, if a property worth Rs 55 lakh includes additional charges totalling Rs 4 lakh, the TDS should be calculated on Rs 59 lakh. This streamlined approach ensures transparency and compliance in property transactions, safeguarding both parties against potential tax disputes.

Also read TDS on Salary under Section 192 – Rates, Forms, & Calculation

TDS on Purchase of Property – Section 194IA

When discussing TDS in property transactions, it’s important to understand that TDS obligations arise not only during the sale but also during the purchase of property. While the seller is responsible for capital gains tax on the sale of the property, the buyer has specific TDS obligations under Section 194IA of the Income Tax Act.

Under Section 194IA, any person purchasing immovable property (except agricultural land) valued at Rs. 50 lakhs or more is required to deduct TDS at 1% of the transaction value. This TDS must be deducted at the time of payment to the seller and deposited with the government within 30 days using Form 26QB. The buyer must also issue a TDS certificate (Form 16B) to the seller as proof of the deduction.

Click here to learn more about TDS on Purchase of Property – Section 194IA

TDS on Property Sales by NRIs

When Non-Resident Indians (NRIs) sell property in India, they are subject to capital gains tax. For inherited properties, the purchase date of the original owner is crucial to determine whether the capital gains are long-term or short-term. The valuation of the property should include costs incurred by the previous owner, ensuring a precise calculation of capital gains that reflects the unique aspects of inherited properties.

The buyer is responsible for deducting TDS from the sale proceeds and depositing it with the Indian Income Tax Department within the specified period. After the TDS is deducted, the buyer must file Form 27Q detailing the deduction and payment. The tax rate for long-term capital gains is set at 20%, while short-term gains are taxed according to the NRI’s applicable income tax slab rates, which depend on their total taxable income in India.

Introduction to Form 26QB and Form 16B in Property Transactions

Form 26QB: Challan-Cum-Statement for TDS on Property Transactions

Form 26QB is essentially a declaration and payment form used by the buyer of immovable property to deduct and deposit the TDS with the government. It acts as a digital challan for online payment and needs to be filled out when a property transaction requires TDS deduction.

Form 16B: TDS Certificate for Property Transactions

Form 16B is the TDS certificate that is issued by the buyer to the seller, detailing the TDS deducted on the property purchase and deposited with the government. It serves as proof for the seller that the TDS was duly deducted and paid.

Documents Required for Filing TDS on Property Sale

If you’re ready to file TDS on a property sale, it’s important to gather the necessary documents to ensure accurate and compliant reporting. Here’s what you’ll need:

• Sale Agreement: A registered copy of the sale agreement is essential for calculating the TDS amount.
• Property Details: Information like the location, size, and age of the property is needed to determine the applicable TDS rate accurately.
• PAN Card: The Permanent Account Number (PAN) cards of both the buyer and the seller must be included in the TDS return.
• Aadhaar Number: Following recent legal updates, it’s now mandatory to include the Aadhaar number of the relevant parties when filing the TDS return.

Steps to File TDS on Sale of Property – Filing Form 26QB

Here are the steps to successfully pay Tax Deducted at Source (TDS) through Challan 26QB and secure Form 16B for the seller:

Online Payment through Challan 26QB

Step 1: Access your account on the Income Tax e-filing portal, select ‘e-File’, then choose ‘e-Pay Tax’ from the dropdown menu.

Step 2: Click on ‘+ New Payment’.

Step 3: Proceed by selecting ‘26QB- TDS on Property’.

Note: The subsequent steps require you to enter details such as:

• Buyer’s Details
• Seller’s Details
• Property Transfer Details
• Payment Information

Step 4: Input the buyer’s details. These will be auto-filled, but adjustments can be made if necessary. Click on ‘Continue’.

Step 5: Enter all pertinent seller’s details, including their PAN and address.

Step 6: Fill in the property details, including type and address, and sale specifics like the date of agreement and value. The tax amount will be auto-calculated. Then, click on ‘continue’.

Step 7: Choose your payment method and finalize the payment. A challan will then be generated.

Registering on TRACES

Step 8: If this is your first time, register on TRACES as a taxpayer using your PAN and the challan details from your tax payment. Post-registration, you can obtain the approved Form 16B (TDS certificate) and issue it to the seller. Verify your Form 26AS seven days post-payment to ensure your details are accurately reflected under the section “Details of Tax Deducted at Source on Sale of Immovable Property u/s 194(IA) [For Buyer of Property].” Part F will list the TDS certificate number, deductee’s name and PAN, transaction date and amount, acknowledgement number, deposit date, and TDS amount.

Step 9: To download your Form 16B, log into TRACES, navigate to the ‘Download’ tab, and select “Form-16B (for the buyer).” Input the seller’s PAN and the acknowledgement number relevant to the property transaction and click on “Proceed”. Confirm the details and submit a request.

Once processed, access ‘Requested Downloads’ from the ‘Downloads’ tab. If the status indicates ‘available,’ proceed to download the ‘.zip file’, which is password protected using the deductor’s birthdate (format DDMMYYYY).

Extract the .pdf file from the zip, and print your Form 16B.

Notice for Non-Compliance with Form 26QB Filing Requirements

The Income Tax Department routinely receives an Annual Information Return (AIR) from the registrar/sub-registrar’s office, detailing property transactions. This enables the department to monitor property purchases and sales exceeding Rs. 50 lakh.

Should a buyer fail to deduct 1% tax at source on such transactions or neglect to file the TDS via Form 26QB within the designated timeframe, the Income Tax Department will issue a notice to the buyer for non-compliance.

Penalties for Non-Filing of TDS on Sale of Property

Failing to file Tax Deducted at Source (TDS) on the sale of property can lead to significant penalties for both buyers and sellers. Under Section 194-IA, the tax amount deducted during a property transaction must be paid to the government within seven days from the end of the month in which the TDS was deducted. Here’s a breakdown of the penalties associated with non-compliance:

Implications for Buyers:

• Late Filing Fee (Section 234E): If the buyer fails to submit Form 26QB on time, a late filing fee of Rs. 200 per day is charged for each day the failure continues. This fee accrues until the penalty amount equals the TDS amount.
• Interest on Late Deduction and Payment: Buyers are liable for interest if the TDS is not deducted on time or if it is deducted but not paid to the government. Interest is charged at 1% per month or part of a month for late deduction and at 1.5% per month or part of a month for late payment from the date the tax was deductible to the date the tax is actually paid.
• Penalty Under Section 271H: Apart from the late filing fee, the Assessing Officer may also impose a penalty under Section 271H, which can range from Rs. 10,000 to Rs. 1,00,000. This penalty is applied for not filing the TDS statement or for incorrect details in the statement.

Implications for Sellers:

• Ineligibility to Claim TDS Credit: If the buyer fails to file Form 26QB or does not file it by the deadline, the seller cannot claim the TDS credit, which can affect their income tax returns.
• Requirement for Proper TDS Deposit: The seller should ensure that the buyer has deposited the TDS amount with the government using an authorised bank branch or through e-tax payment methods (net banking). This ensures that the seller can claim the TDS credit without any issues.

Key Considerations

• Cap on Late Filing Fees: The total late filing fee cannot exceed the amount of TDS that is required to be deducted. This means that the maximum penalty for late filing cannot be more than the TDS itself.
• Obligation to File Even with Zero TDS: Even if the transaction does not result in any TDS to be deducted (e.g., because of a lower transaction value or applicable exemptions), Form 26QB still needs to be filed to report the transaction details to the tax authorities.
• Combined Penalties: If there are delays in both deducting and depositing TDS, combined interest charges (1% for non-deduction and 1.5% for non-deposition) can substantially increase the total amount payable.

To provide a clearer understanding, we’ve included a table outlining the key points of Penalties for Non-Filing of TDS on Sale of Property:

Conclusion

Section 194IA of the Income Tax Act plays a vital role in ensuring that taxes are properly handled in property transactions in India. It requires buyers to deduct tax deducted at Source (TDS) on property purchases of over Rs 50 lakhs, ensuring the correct tax is paid to the government. Failure to comply with this requirement can lead to penalties, including daily fines, interest charges, and additional penalties, which can significantly increase the cost for the buyer.

Ensure hassle-free TDS return filing with IndiaFilings. Our experts are here to guide you through every step. File Now!