Synopsis: Buying or selling property above ₹50 lakhs? You may want to learn about an important tax rule called TDS. In this article we will explore the whole process of TDS, so that you as a tax payer have no confusion while paying it.
Buying a property in India is not just about paying the price of the property and the registration fees, when you buy a property worth more than ₹50 lakhs you have to deduct 1% of the property price and deposit it as TDS according to the income tax rules in India. Many people who buy homes do not know about this rule and if they do not follow this rule they might have to pay penalties or deal with compliance issues later. Understanding how TDS, on property works can help both the buyer and the seller avoid problems when buying or selling a property.
What Is TDS on Property Transactions?
Under Section 194-IA, if you buy a house, apartment, building or land (excluding agricultural land) you have to deduct some tax, this tax is called Tax Deducted at Source (TDS). You deduct it from the payments you make to the seller. The TDS amount is 1% of the price you pay for the property or the stamp duty value whichever is higher. You have to deduct this TDS on the payments made to the seller of the property.
Who Pays the 1% TDS?
Section 194-IA applies to every buyer be it an individual, HUF, company or firm. It does not matter if you are tax audited or if you have a TAN. Unlike TDS provisions that require a TAN, Section 194-IA allows you to file using your PAN. The exemption list is very short
- Property that costs less than Rs 50 lakh (If the stamp duty value is higher than what you agreed to pay, use that instead ‘Finance Act 2022’)
- Agricultural land, but only rural land, not farmhouses, in cities.
- If the government takes your land that is covered under Section 194LA instead.
How to Pay TDS on Property Above ₹50 Lakh?
The buyer has to deduct 1% tax from the property’s payment and give it to the government using Form 26QB.This form has to be filled out within 30 days from the end of the month when the payment is made.
Steps to File Form 26QB
- Visit the Income Tax efiling website.
- Choose Form 26QB under tax on property transactions.
- Enter details like: PAN of buyer and seller, property address, sale value and payment details
- Check the information and submit the form.
- Pay the tax amount online through banking or make a challan for offline payment.
- After you pay successfully you will get an acknowledgment receipt.
What Happens After Filing?
Once the tax payment is done:
- Buyers can download Form 16B from the TRACES website after some days.
- Form 16B is like a tax deduction certificate and it must be given to the seller as proof of tax deduction.
- The seller can later claim this tax amount while filing income tax returns.
- Buyers do not need a TAN number, for filing property tax under Section 194-IA.
Also read: Inheritance Tax in India: Are Bonds, Stocks & Mutual Funds Taxable for Nominees?
What Happens If TDS Is Not Paid?
Suppose a buyer buys a property worth ₹80 lakh, they have to remember to deduct and deposit the required 1% TDS of ₹80,000. If they forget to do this the Income Tax Department will charge them interest penalties and late filing fees for not following the rules. Interest will be charged for two things: failing to deduct the TDS and delaying the deposit of the deducted amount with the government.
If the buyer delays in filing Form 26QB or giving Form 16B to the seller, this can cause problems with following the rules. The buyer may also get notices from the Income Tax Department when they check income tax, sell the property again or verify documents in the future.
Not paying the TDS can also cause problems for the seller as the deducted tax amount is shown in their tax records, they can claim it later when they file their income tax returns. If the TDS is not deposited correctly the seller will have trouble claiming tax credit. To avoid getting penalties, notices and legal problems buyers should make sure that the TDS is deducted, deposited and documented correctly and on time.
Conclusion
Paying TDS is an important tax rule that buyers cannot ignore, at first it might seem a bit complicated but if you do everything correctly step by step, like taking out the 1% TDS and depositing it timely, you will not have to deal with any legal problems or penalties later on.
Written by Shreya Tiwari
