TDS on property sale under Section 194IA

[ecis2016.org] The purchaser of an immovable property has to deduct tax at source, while paying the seller, if the value of the transaction is Rs 50 lakhs or more

TDS on property sale to be imposed on higher of stamp duty value or sale amount: Budget 2022

Home buyers have to deduct 1% TDS on property purchase based on either the stamp duty value or the actual price, whichever is higher, according to an announcement made by finance minister Nirmala Sitharaman in the Budget 2022. This new rule comes into effect on April 1, 2022.

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TDS on property sale

What is Section 194-IA

Under Section 194-IA of the Income-Tax Act, a buyer is liable to deduct and submit 1% of the transaction cost as TDS on sale of property, if the value of the property is over Rs 50 lakhs. Section 194-IA, however, does not specify which amount should be considered to calculate the TDS on property sale if there is a variation between the stamp duty value and the actual sale value of the property.

It begs mention here that one cannot register a property below government-determined circle rates, based on which stamp duty on the transaction is calculated. The market rate of the property could be higher or lower than its stamp duty value. In such a case, the buyer will have to calculate TDS on property sale based on the value which is higher, according to the announcement on February 1, 2022.

“Section 194-IA of the Act provides for deduction of tax on payment on transfer of certain immovable property other than agricultural land. Sub-section (1) of the said section provides for deduction of tax by any person responsible for paying to a resident any sum by way of consideration for transfer of any immovable property (other than agricultural land) at the time of credit or payment of such sum to the resident at the rate of 1% of such sum as income-tax thereon. Sub-section (2) provides that no deduction of tax shall be made where the consideration for the transfer of an immovable property is less than Rs 50 lakhs,” the Memorandum to the Budget 2022 explains.

“As per the provisions of the said section, TDS is to be deducted on the amount of consideration paid by the transferee to the transferor. This section does not take into account the stamp duty value of the immovable property, whereas, as the provisions of Section per 43CA and 50C of the Act, for the computation of income under the head ‘profits and gains from business or profession’ and ‘capital gains’, respectively, the stamp duty value is also to be considered. Thus, there is inconsistency in the provisions of Section 194-IA and Sections 43CA and 50C of the Act,” it adds.

“In order to remove inconsistency, it is proposed to amend Section 194-IA of the Act to provide that in case of transfer of an immovable property (other than agricultural land), TDS is to be deducted at the rate of 1% of such sum paid or credited to the resident or the stamp duty value of such property, whichever is higher,” it further adds.

In case the consideration paid for the transfer of immovable property and the stamp duty value of such property are both less than Rs 50 lakhs, then, no tax is to be deducted under section 194-IA.

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What is TDS and who deducts it?

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In order to check the rampant use of unaccounted money in immovable property transactions, the government of India introduced a law, wherein, the purchaser of a property has to deduct tax at source, while paying the seller for his property. The concept of TDS or tax deducted at source was introduced, with an aim to collect tax from the very source of the income.

The law mandates that a person (deductor) who is liable to make payment of specified nature to any other person (deductee) should deduct tax at source and remit the same into the account of the central government. This practically means that the responsibility to deduct the TDS would lie with the home buyer in property transactions. The seller from whose income the tax has been deducted at source, would be entitled to get credit of the amount so deducted on the basis of Form 26AS or a TDS certificate issued by the buyer.

In case the parties involved in the deal fail to discharge this duty, they will be liable to pay a penalty for the same. In fact, in case of the buyer’s failure to deduct the due TDS and submit it with the authorities, penal action can be initiated against him.

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TDS on sale of property

Properties that are covered

“Any person, being a transferee, responsible for paying to a resident transferor any sum by way of consideration, for the transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 1% of such sum as income tax thereon,” reads Section 194IA of the Income Tax Act. This section requires a buyer to deduct tax at the rate of 1% of the sale consideration, if the value of the transaction is Rs 50 lakhs or more. This section covers residential property, commercial property, as well as land. However, transactions pertaining to the purchase of agricultural land, are not covered under this provision.

Also, in TDS matters, the treatment of properties that are being sold by an NRI would be different, since the government also deducts the capital gains tax from NRIs along with the TDS. That is why the rate of TDS is much higher in such cases.

When to deduct the TDS and how to pay it?

The purchaser of the property has to deduct the TDS, either at the time of executing the conveyance deed, or at the time of payment of advance in case any advance is being paid before the execution of the conveyance deed. The buyer has to deposit the TDS amount to the credit of the central government, within 30 days from end of  the month in which the tax is so deducted. For payment of the TDS and furnishing other particulars, you have to fill in Form-cum-challan No 26QB. If a property has more than one buyer and/or seller, you need to fill in separate Form 26QB for each set of buyer and seller. The details of all buyers and sellers, have to be submitted in each Form 26QB.

TDS on rent

An individual or an HUF who pays of rent, is also liable to deduct tax at source. The same is true of individuals and HUFs subject to tax audit. The threshold for deduction of TDS on rent is Rs 2.40 lakhs for the FY 2020-21. Till FY 2019, this limit was kept at Rs 1.80 lakhs.

Details required for payment of the TDS

It is the buyer who has to comply with the requirement of deducting TDS and paying the amount to the central government. Detailed instructions for filling up the form and payment of tax can be found at the following link: http://www.incometaxindia.gov.in/Pages/tds-sale-of-immovable-property.aspx

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Generally, every person who is responsible for deducting TDS has to obtain a TAN (tax deduction account number). However, in case of TDS on immovable property, the buyer does not have to obtain the TAN. You need to provide details like name, address, PAN, mobile number and email id of the seller as well as buyer, in Form 26QB. You also need to provide the complete address of the property, along with the date of agreement, total value of consideration, date of payment, etc.

The buyer should ensure that the PAN of the seller is correct. Otherwise, the seller will not be able to get the credit for tax deducted by the buyer, as the credit shall flow on the basis of PAN card details furnished in Form 26QB.

The TDS can be paid online or deposited offline, by tendering the physical challan to an authorised bank. The bank will then update the details on the income tax department’s website. Once the TDS has been deposited, the buyer has to download the TDS certificate in Form No 16B, from the website of the Income Tax Department and furnish it to the seller within 15 days.

Lower deduction or nil deduction of TDS

Some TDS provisions provide for the payee to either approach the income tax officer for issue of a certificate, so that the payer shall deduct tax at a lower rate or nil rate, or in some cases the payee can just furnish a declaration for nil TDS. However, there is no such provision for TDS on immovable property. The buyer has to mandatorily deduct tax at source, where the consideration exceeds Rs 50 lakhs, in respect of each set of buyer and seller.

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What is the due date for depositing the TDS to the government?

After the buyer deducts the TDS (tax deducted at source), they must deposit it with the government by the 7th of the following month. This means that the TDS deducted in the month of March must be paid to the government by April 7.

Consequences of non-payment of TDS

Under the provisions of the law, the buyer is expected to deduct the applicable TDS from the transaction value and duly submit it with the government. Buyers can use their PAN details in the documents, as having a TAN is not mandatory in their case. Buyers who fail to pay the TDS to the government within the stipulated time period, can be made to pay a penalty in the form of interest or sentenced to rigorous imprisonment of up to seven years. Do note here that even though the seller may be forced to make the payment, it is the buyer who would face the penalty.

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TDS: Points for buyer to remember

1. Deduct 1% or 0.75% TDS from the sale consideration, depending upon the date of payment.
2. Get the seller’s PAN and verify it with the original PAN card.
3. Your PAN is also needed to pay TDS.
4. Do not commit any error in quoting the PAN or other details in the online form as there is no online mechanism for rectification of errors.
5. For the purpose of rectification you are required to contact the Income Tax Department.

TDS: Points for seller to remember

1. Provide your PAN to the buyer.
2. Verify deposit of taxes deducted by the buyer in your Form 26AS Annual Tax Statement.

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Key things to remember about TDS

• Buyers have to deduct and pay TDS to the government on property valued over Rs 50 lakhs.
• The responsibility to deduct and submit the TDS lies on the buyers and not on the seller.
• In case of any misappropriation in this regard, the buyer will be answerable to the authorities.  Buyers have to fill Form 26QB, to credit the TDS.
• In case there are multiple buyers or sellers involved in the transaction, separate forms have to be filled for each party.

FAQs

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