TDS ON PROPERTY

Posted by Vaishali Goyal
On 14 Apr 2020

Short Overview – TDS on Property has to be paid by every buyer of the property if the value of property crosses the threshold of Rs. 50,00,000/-. Here in this article, we will discuss TDS on Property, in detail.

Prior to June 1, 2013, no TDS provisions were applicable to the purchase of any property. And in general, very few people reported property transactions in their income tax returns. Also, the value of transactions of the property was also reported quite low. Due to which the government was suffering a lot of tax loss.

Keeping in view, this problem in mind, Section 194IA in Income Tax Act, was introduced by the government on 1 June 2013. According to this Section 194IA, if any person buys a property from any resident of India, then TDS will have to be deducted by the buyer before paying the property to the seller.

What is 194IA?

Section 194IA of the Income Tax Act, 1961 lays down the provisions of TDS on the purchase of the immovable property. According to this section, if any person makes any payment in respect of the purchase of property to a resident of India, he will have to deduct TDS on this payment.

However, TDS will be deducted in this case when the total consideration received for the property is more than 50 lakhs.

If the consideration amount is more than 50 lakhs then TDS will be deducted by the buyer at the rate of 1%.

Who will cut TDS?

TDS will be deducted by the buyer of immovable property.

Furnishing of PAN

Taxpayers, whose receipts are subject to TDS, are required to present their PAN to the deductor, or in other words to the payer. Failure to fulfil this obligation will require the deductor to apply the maximum of the following rates:

  1. If the seller does not give his PAN number to the buyer or the seller does not have a PAN number, then TDS will be deducted by the buyer at the rate of 20%, or
  2. The rate specified in the latest Finance Act.

What if, a person buys immovable property from Non-Resident?

Section 194IA will not be applicable in case purchase of property from Non-Resident. Therefore TDS has to be deducted under section 195 of the Income Tax Act, 1961

Applicability of TDCAN

Tax deductors covered under this provision are not required to utilize the provisions of Tax Deduction and Collection Account Number (TDCAN).

Is the provision of Section 194IA will be applicable on purchase of Agriculture Land?

According to section 194IA, any land, building or part of a building is included in the property. But it does not include any agricultural land.

That is if any agricultural land is sold, whose sale consideration is more than 50 lakhs, then TDS will not be deducted on it.

When and what amount of TDS be deducted in this section?

TDS will be deducted in section 194IA whichever is earlier of-

1. On payment of property payment or

2. The credit of the amount to seller’s account

The most important thing to deduct TDS in this section is that the consideration for the property is more than 50 lakhs. If the consideration for the property is more than 50 lakhs, then TDS will be deducted on the entire consideration amount and not only on the amount of more than 50 lakhs.

Example:- 1. TDS APPLICABLE

Transaction value for purchase of property – 70,00,000

GST on above property – 9,60,000

Total amount to be paid – 79,60,000

In the above-mentioned case, TDS would be deducted on the transaction value of the property i.e. Rs.70 lac. And not on the GST levied thereon. Therefore, the TDS to be deducted would be 1% of Rs. 70 lac. i.e. 70,000

Example :-2. TDS NOT APPLICABLE 

Transaction value for purchase of property – 45,00,000

GST on above property – 6,00,000

Total amount to be paid – 51,00,000

In the above-mentioned case, TDS not deducted because the transaction value is less than 50,00,000.

When you buy more than one property in Financial year. So the TDS would be deducted or not?

If you buy more than one property in a financial year. The value of a single property is not more than 50 lakhs in these purchased properties, but together it is more than 50 lakhs, then also, TDS is not required to be deducted. However, the answer to the above is solely dependent on the facts of the individual cases.

Payment and return of TDS:-

  1. The tax shall be deducted at the time of payment or at the time of giving credit to the transferor, whichever is earlier. If advance payment is being made than TDS would be required to be deducted at the time of advance payment itself. And if instalment payment is made, the TDS would be required to be deducted at each such payment.
  2. The tax deducted shall be paid to the credit of the Central Government within a period of thirty days from the end of the month of deduction.
  3. Mandatory:- online payment u/s 194IA is mandatory and the tax should be deposited via challan-cum-statement in Form 26QB and Form 16B (TDS certificate) will be issued by the deductor within fifteen days from the due date of depositing tax.

Scope:-

  1. Section 194IA is applicable to all including relatives, minors, senior citizens, etc.
  2. However, if the transfer is made without payment of any consideration like in case of a gift, then this section does not apply.

Some important points regarding TDS in section 194IA

  1. Section 194ia was implemented from June 1, 2013, so transactions prior to this date will not be covered in this section.
  2. TDS will not be deducted if the consideration amount is less than 50 lakhs.
  3. You are not required to take TAN (TAX DEDUCTION ACCOUNT NUMBER) for deduction of TDS in Section 194IA
  4. Both buyer and seller must have PAN. If the seller does not have PAN, TDS will be deducted at the rate of 20%.
  5. The buyer of the property can be anyone (salaried person or any dealer). This section will apply to all.
  6. TDS will be deducted even in case the seller has no Capital Gain. 
  7. Even if a seller claims exemption of the entire capital gain in section 54, the buyer is still required to deduct the TDS.
  8. If the property is purchased from Non-resident Person, Section 194IA, will not apply. However, TDS has to be deducted under section 195 of the Income Tax Act,1961

Non-compliance

In case of failure to comply with the provision, interest and penalty would be imposed on the purchaser.

  1. TDS are not deducted by the buyer, interest will be charged at the rate of 1% per month or part of the month on the amount of TDS not deducted by him.
  2. But if the buyer does not submit the TDS to the government after deducting it, then interest will be charged at the rate of 1.5% per month or part of the month.

In case of any further clarification is needed, feel free to connect with us.

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