TDS - Purchase an Immovable Property
Planning to buy an Immovable Property (Land or Building or both)?
Check the TDS Implications beforehand, any non-compliance may prove out to be costly for you.
The Income Tax Department came up with the provisions of TDS on Immovable Property with an aim to keep a check on all the significant property sale/purchase transactions taking place in the county. Tax Deducted at Source (TDS) on immovable property refers to the deduction of tax at the time of payment for the transfer of property, which is required under Section 194-IA of the Income Tax Act, 1961.
This provision is aimed at ensuring the collection of tax on income arising from the transfer of property. It applies to both residential and commercial properties and is a key compliance requirement in real estate transactions.
Applicability of TDS on Immovable Property:
1. Who is Liable to Deduct TDS? TDS must be deducted by the purchaser of the property (the buyer), irrespective of whether the buyer is an individual, a company, or any other type of entity. The seller is not responsible for deducting tax, as the liability falls on the purchaser.
2. When is TDS Applicable? TDS under Section 194-IA is applicable when the total consideration for the transfer of immovable property ₹50 lakhs or more. If the transaction amount is below ₹50 lakhs, TDS is not applicable.
Further it is to be noted that this limit is inclusive of all the payments made by the buyer in respect of property, facility charges, parking fees, maintenance fees, club membership fees, etc.
Also, as per recent amendments, where there is more than one transferor or transferee in respect of any immovable property, then the consideration shall be the aggregate of the amounts paid or payable by all the transferees to the transferor or all the transferors for transfer of such immovable property.
3. Rate of TDS: The rate of TDS on the transfer of immovable property is 1% of the total sale consideration or the Stamp Duty Value, whichever is higher, irrespective of the nature of the property (residential or commercial).
However, if the seller is a non-resident, the provisions of Section 195 may apply, which could result in a higher TDS rate.
4. Exemption from TDS: The following conditions exempt the purchaser from deducting TDS:
- The consideration amount as well as the Stamp Duty Value of the property is less than ₹50 lakh;
- The seller is a non-resident and the property sale involves agricultural land or another special category.
Note: In such cases, the buyer must carefully check the nature of the transaction to ensure TDS is not incorrectly avoided.
Process of Deducting and Depositing TDS:
1. Deduction of TDS: At the time of making payment (or crediting the amount) to the seller, the buyer is required to deduct 1% of the sale consideration or the Stamp Duty Value of the property as TDS amount.
2. Payment to the Government: The TDS deducted should be deposited with the government within 30 days from the end of the month in which the deduction was made. Payment is to be made via the challan-cum-statement (Challan No. ITNS 281).
3. Furnishing TDS Certificate: The buyer must issue a TDS certificate (Form 16B) to the seller within 15 days from the due date of depositing the TDS. This certificate acts as proof of tax deduction.
4. Filing of TDS Returns: The buyer is also required to file a TDS return in Form 26QB. The return should be filed within 30 days of deducting and depositing TDS.
Key Considerations for the Seller:
1. Adjustment in Sale Consideration: Since TDS is deducted by the buyer, the seller will receive the sale consideration after the deduction. The seller must adjust the TDS deducted when filing their income tax return.
2. Tax Credit: The TDS deducted will reflect in the seller’s Form 26AS/AIS/TIS, which can be claimed as a tax credit while filing their income tax return.
3. Final Tax Liability: TDS on property transfer does not necessarily settle the seller’s full tax liability. It is just a way to ensure tax compliance. Depending on the seller’s total taxable income, the seller may need to pay additional taxes at the time of filing the income tax return.
Conclusion:
TDS on immovable property is a significant step toward improving tax compliance in real estate transactions. Buyers must ensure that the required TDS is deducted and deposited on time to avoid penalties. Sellers must ensure they claim the credit of the TDS deducted against their total tax liability. It is advisable for both parties to be aware of the procedural requirements. If you have any doubt or need assistance with regard to these compliances, you may get in touch with our team for expert advise and tax solutions.