DS is a part of the income tax that is deducted from payments like salaries, investments, and property purchases. The Income Tax Act, 1961 governs TDS on property purchases.
What is TDS on Property Purchase?
TDS on property purchase is the tax that the buyer deducts from the seller during the property purchase. The buyer deposits this TDS with the government. Section 194IA of the Income Tax Act covers TDS on property purchases. TDS ensures income tax collection from the seller.
When is TDS Applicable on Property Purchase?
TDS is applicable when the property’s sale consideration exceeds ₹50 lakh. This threshold includes the cost of the land, building, and any other associated expenses like parking fees or club membership fees. If the sale consideration is ₹50 lakh or less, TDS is not applicable.
Rate of TDS on Property Purchase
TDS is deducted at a rate of 1% of the total sale consideration. The buyer deducts this amount at the time of payment to the seller. For instance, if a property is purchased for ₹60 lakh, the TDS amount would be ₹60,000 (1% of ₹60 lakh).
Who is Responsible for Deducting TDS?
The buyer of the property is responsible for deducting TDS. The buyer must have a Permanent Account Number (PAN) to deduct and deposit TDS. If the seller doesn’t provide their PAN, TDS is deducted at a higher rate of 20% as per Section 206AA of the Income Tax Act.
How to Deposit TDS on Property Purchase
The buyer must deposit the TDS with the government within 30 days from the end of the month in which the deduction was made. TDS is deposited online through Form 26QB on the TIN-NSDL website. Here are the steps:
- Visit the TIN-NSDL website.
- Fill out Form 26QB with the necessary details like buyer and seller PAN, property address, sale consideration, and TDS amount.
- Make the payment through net banking or credit/debit card.
- After successful payment, download the TDS certificate (Form 16B).
Consequences of Not Deducting or Depositing TDS
Failure to deduct TDS or deposit it within the specified time can lead to penalties. The buyer may be liable to pay interest at 1% per month or part of a month on the TDS amount from the date of deductibility to the date of deduction. Additionally, interest at 1.5% per month is levied from the date of deduction to the actual date of payment. Penalties under Section 271H may also apply for late filing of TDS returns.
TDS on Property Purchase for NRIs
When purchasing property from a Non-Resident Indian (NRI), the TDS rules are different. In such cases, TDS is deducted under Section 195 of the Income Tax Act. The TDS rate is higher, typically around 20% plus applicable surcharge and cess, but it could vary based on the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the seller’s country of residence.
Key Considerations for TDS on Property Purchase
- Sale Consideration: Ensure that the sale consideration includes all amounts paid for the property, including any additional charges.
- PAN Details: Verify the PAN details of both the buyer and seller to avoid discrepancies.
- Form 26QB: Fill out Form 26QB accurately with all the required information.
- Timely Deposit: Deposit the TDS within the stipulated time frame to avoid penalties.
- Form 16B: Download Form 16B (TDS certificate) from the TIN-NSDL website and provide it to the seller.
Benefits of TDS on Property Purchase
- Revenue for Government: TDS ensures a steady flow of revenue for the government.
- Tracking Transactions: It helps in tracking high-value property transactions.
- Tax Compliance: It promotes tax compliance among property buyers and sellers.
- Reduces Tax Evasion: TDS reduces the scope for tax evasion in property transactions.
Common Mistakes to Avoid
- Incorrect PAN: Providing an incorrect PAN can lead to TDS mismatches.
- Late Deposit: Delaying the TDS deposit attracts interest and penalties.
- Wrong Form: Using the wrong form for TDS deposit can create complications.
- Underestimating Sale Consideration: Underreporting the sale consideration to avoid TDS is illegal.
Conclusion
TDS on property purchase is a crucial aspect of property transactions in India. Buyers must understand the rules and regulations related to TDS to ensure compliance and avoid penalties. Accurate deduction, timely deposit, and proper documentation are essential for a smooth property transaction.
