In India, taxes are applicable to almost every significant financial transaction, and real estate transactions are no different. One crucial tax applied on property selling or buying in India is TDS under Section 194IA. As per this section, during property transactions, a certain amount is deducted at the buyers end as TDS before the payment is made to the seller. The deduction ensures that the government receives its due share of taxes from these high-value transactions. Additionally, it helps maintain records, transparency and compliance in the real estate market.
So, let’s understand Section 194IA first, followed by the rules for TDS payment on the sale of property that every buyer and seller should be aware of.
What is Section 194IA of IT Act?
Section 194IA of the Income Tax Act mandates buyers to deduct one percent on the sale of immovable property (excluding agricultural land) with a transaction value over Rs 50 lakh. This deducted amount must be deposited with the government using Form 26QB. Buyers and sellers must provide their PAN, else TDS is deducted at 20 percent. The buyer needs to issue a TDS certificate (Form 16B) to the seller.
What are the rules for payment of TDS on the sale of property?
While paying the TDS on the sale of property, the buyers need to follow certain rules for a legally compliant transaction. Read on to know them all.
Mandatory PAN cards: Both seller and buyer must have PAN cards for TDS on property deduction under Section 194IA.
Higher TDS rate without PAN: If a buyer fails to obtain the seller's PAN, then the TDS rate will be increased to 20 percent.
Payment in instalments: If the payment for the property is made in instalments, then TDS must be deducted on each instalment.
Threshold for TDS: If the transaction value is less than Rs 50 lakh then no TDS is applicable under the Section 194IA of ITA.
Inclusion of additional charges: Since September 2019, payments such as club membership, car parking, advance fees, maintenance fees, and electricity fees are also considered part of the 'consideration for immovable property.' These charges will be included in the taxable total.
Apart from these, the government has also notified a new rule for TDS on the sale of property. Here are its details.
What is the new rule for TDS on property?
According to Income Tax Act, a person buying a house or any other immovable property (excluding agricultural land) must deduct TDS. It should be deducted at the rate of one percent, if the payment amount is Rs 50 lakh or more. Here the term 'entity' includes individuals, companies, firms, Hindu Undivided Families (HUFs), associations of persons, bodies of individuals, local authorities, and every artificial juridical person.
The government's new TDS rule was updated in 2022 within Section 194-IA. It states that TDS should be deducted from the amount paid or credited to the individual or the stamp duty value (SDV) of the property, whichever is higher. This ensures that TDS is calculated based on the property's fair and accurate value.
Could the article help you understand the topic?
Who can claim TDS on the sale of property?
The seller has the right to claim this amount as a tax credit when filing their income tax returns. The buyer is responsible for deducting TDS and depositing it with the government. Notably, the seller cannot pay the TDS on behalf of the buyer. This deduction must be made at the time of payment. After deducting the TDS, the buyer must deposit the amount to the government using Form 26QB.
In conclusion, paying TDS is important for parties involved in buying or selling a property. The deduction amount is also subject to change according to the transaction value. Buyers and sellers must comply with the rules and regulations to avoid issues and ensure a smooth transaction. It is the buyer's responsibility to deduct the specified amount to fulfil the obligations mentioned in the Income Tax Act. Such practices contribute to the transparent functioning of property transactions.
