All You Need to Know Regarding TDS on Property with Emphasis on Section 194IA of Income Tax Act, 1961

Tax should be deducted at source by the buyer from the sum given to the seller during the sale of the property, according to Section 194IA of the Income Tax Act of 1961. Except for agricultural land, TDS must be deducted on the sale of all forms of property. TDS on the sale of the property should be deducted only if the sale price exceeds Rs. 50 lakhs. TDS is 1%, and the buyer is responsible for deducting and paying it. On this 1% TDS, there is no need to pay any further surcharges or cess. Within 30 days of the end of the month in which the TDS was deducted, the buyer must deposit the TDS.

The buyer must deposit the TDS on the property along with Form 26QB, which includes the buyer's and seller's PAN numbers. The TDS payment as well as the paperwork can be completed and submitted online. Following the successful deposition of the form and payment, a challan with the CIN and payment details will be generated, which will serve as proof of deposition and should be kept by the buyer. Within 7 days, the payment will appear on the seller's Form 26AS (Part F) (as the payment is made on behalf of the seller). Under form 16B, the buyer must deliver the TDS challan to the seller. On the TRACES website, the TDS certificate will be accessible for download.

The credit of the TDS can be claimed by the seller if the property transaction is not used for capital gains. Form 16B and Form 26AS contain the TDS amount. If the seller wants to claim a capital gains exemption, he can request a TDS refund by including the information on his tax returns or by obtaining a certificate from the Assessing Officer declaring that no TDS on sale of property should be deducted from the payments. The certificate can then be presented to the buyer by the vendor. The requirements of section 194IA of the Income Tax Act of 1961 are discussed in this article, as well as the scope and restrictions of section 194IA.

What is TDS?

TDS (Tax Deducted Source) is a concept that was created to collect taxes at the source of income. According to this notion, TDS on sale of property is deducted by the deductor (person who makes a payment) at the time of making a specific type of payment to another person (deductee) and remitted to the central government. Based on form.26as (annual consolidated credit statement) or TDS Certificate, the deductee can receive a credit for the amount so deducted.

The History of Section-194IA

SEC-194IA was added to the Income Tax Act of 1961 as a result of a change to the finance bill of 2013 to create a reporting mechanism for real estate transactions and to collect taxes as soon as possible. To make compliance easier for small taxpayers, no tax will be deducted on transactions under 50 lakhs.

Section 194IA's Provision

Other than the individual referred to in section 194LA, i.e. the person liable for the debt, anyone who acquires the property is responsible for paying any cash as payment for the transfer of immovable property on account of forcible acquisition under any law currently in force as referred to in 194LA section other than agricultural land) to a resident transferor (i.e., the resident person who transfers the property), should deduct an amount equivalent to one percent of the amount as income tax when crediting the amount to the transferor's account or when paying the amount in cash, by issue of a check/draft, or by any other means, whichever is earlier.

Only when the consideration for the transfer of immovable property is larger than or equal to 50 lakhs is a deduction allowed. The provisions of the Income Tax Act of 1961, Section 203A (Tax Deduction and Collection Account Number), do not apply to the person liable for deducting TDS on property under section 194IA.

Section 194IA Requirements

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

• If the transaction is valued less than Rs.50 lakh, no TDS is due under Section 194IA.
• TDS on property must be paid on the entire sale price, not just the amount over Rs.50 lakh. For example, if you purchase a home for Rs.70 lakhs, TDS will be calculated on Rs.70 lakhs rather than Rs.20 lakhs.
• TDS will be deducted on each instalment for payments made in instalments.
• Payments such as club membership, auto parking, advance fees, maintenance costs, and power fees have been included in the 'consideration for immovable property' category since September 2019. It means that any property-related charges will be included in the taxable total.
• TDS on property deduction under Section 194IA requires both buyer and seller to have PAN cards.
• If the buyer fails to obtain the seller's PAN, the TDS rate increases to 20%.
• The buyer is responsible for obtaining Form 16B and delivering it to the seller.

A Nutshell on Section 194IA

Immovable property

Immovable property includes any land (other than agricultural land), as well as any building or component of construction.

Agriculture Land

Agriculture land refers to any land that is not included in section 2(14)(iii)(a) of the Act (b).

Applicability and Scope

Only when the following circumstances are met does Section 194IA apply :

As previously stated, the payer can be anyone.

The payee must be a resident transferor of any immovable property other than agricultural land, which must and should be transferred for consideration.

Such a consideration should be worth more than 50 lakhs.

Deduction of Tax

Deduction of TDS on sale of property happens either when such sum/amount/consideration is credited to the transferor's account, or when such sum/amount/consideration is paid in cash, via the issuance of a check/draft, or by any other manner.

Taxation Rates

The TDS on property is deducted at a rate of one percent of the amount or consideration. TDS of 1% shall be deducted from all payments which are incidental to the transfer of immovable property, beginning September 1, 2019.

PAN Furnishing

The person on whose behalf the TDS on property should be deducted at source u/s 194IA should provide the deductor with his or her PAN.

Nonavailability of PAN

If a person fails to provide his or her PAN, tax will be deducted at the higher of the following rates :

• Prescribed rates in the act
• Rate indicated in the finance act
• Rate of 20% rate

TDS Certificate

After generating and downloading the Challan-cum-statement in Form No. 26QB under Rule 31A from the web portal specified by the Director General of Income-tax (System) or a person authorized by him, every person responsible for deduction of tax under section 194-IA shall furnish the certificate of deduction of TDS on sale of property at source within fifteen days of the due date for furnishing the Challan-cum-statement in Form No. 16B to the payee through the Form No. 26QB under Rule 31A.

Key Points

• Even if the sale property is obtained through a home loan or through a builder, the buyer is solely responsible for deducting TDS. In some rare circumstances, the bank may deduct and deposit TDS on the buyer's behalf. You should make a request to the bank for this.

• TDS on sale of property must be deposited within 30 days of the end of the month in which it was deducted by the buyer.
• The buyer must deposit the TDS along with Form 26QB, which includes the buyer's and seller's PAN number.
• The penalty might be imposed if the buyer fails to file or deposit TDS.
• When making a payment to the seller, the buyer is obligated to deposit the TDS. TDS must be deducted from each instalment if the payment is made in instalments. The buyer might also deduct the entire TDS when making the last instalment.
• TDS for the sale of a property should be placed in Form 26QB, with all required information.
• TDS for the sale of a property can be deposited online.
• The buyer must produce a tax certificate to the seller after deducting TDS on a property sale. The Form 16B can be downloaded by the vendor.

Property Sale Penalty for Delayed Payments

According to Section 201

• 1 percent interest per month for each month the deduction is delayed, beginning on the date the deduction was scheduled.

• Interest of 1.5 percent per month on late tax payments to the government, calculated from the due date.

According to Section 234E

• Late Fees of Rs. 200 per day must be paid. The lesser of the total TDS on property liability or the number of days delayed multiplied by Rs. 200 would be charged as a late fee.

• For example, if the total TDS liability is Rs. 30,000 and the delay is 200 days, the buyer will pay a penalty of Rs. 30,000 instead of Rs. 40,000 (Rs. 200 * 200 days).