The real estate sector has grown 3-4 times in the last few years and lacs of transactions of sale and purchase of the immovable property are happening on a day-to-day basis. Immovable property is a most restored method of parking black money or illegal funds. Therefore, the government is making efforts to capture major transactions of sales/purchase of the immovable property.
Therefore, the government implemented TDS provisions on the sale/purchase transaction of immovable properties through Section 194-IA to the Income Tax Act, of 1961.
Provisions of TDS on immovable property are discussed in detail in below article:
1. Applicability of Section 194-IA
- Section 194-IA provides that any person who is purchasing any immovable property from a resident is required to deduct TDS @ 1% of sales consideration payable to the seller.
- However, If the seller is non-resident or NRI then TDS is to be deducted under section 195 on the basis of capital gains and not under this section.
- For the purpose of deduction of TDS, “Consideration for transfer of any immovable property” shall include all charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee, or any other charges of similar nature, which are incidental to the transfer of the immovable property.
- For the purpose of this section, “Immovable property” means any land (other than agricultural land) or any building or part of a building.
2. Transactions not covered under Section 194-IA
- Threshold Limited: No TDS is required to be deducted when considering for transfer of immovable property and the Stamp duty value of the property, both, are less than INR 50 Lacs.
- Agricultural Land:
- Provisions of Section 194-IA are not applicable on the sale/purchase of agricultural land.
- Agricultural land means agricultural lands in India, not being land situated in any area referred to in section 2(14)(iii)(a)/(b).
- A land shall not be treated as Agriculture Land, if:
- It is situated within the jurisdiction of the Municipality or Cantonment Board which has a population of not less than 10,000; or
- It is situated in any area within below given distance measured aerially:
|The population of the Municipality||Distance from Municipal limit or Cantonment Board|
|More than 10,000 but does not exceed 1,00,000||Within 2 km.|
|More than 1,00,000 but does not exceed 10,00,000||Within 6 km.|
|Exceeding 10,00,000||Within 8 km.|
- Seller is NRI: In the case where the seller is an NRI, TDS is deductible u/s 195 on the basis of capital gains and no TDS is deductible u/s 194IA.
3. What conditions are to be satisfied for the applicability of Section 194-IA
For applicability of section 194-IA following conditions need to be satisfied:
- The payer must be any person being a transferee who is responsible for paying to the resident transferor consideration for the transfer of any immovable property.
- The payee must be a resident transferor of immovable property.
- The payment is made for the purchase of any immovable property (other than agricultural land).
- The quantum of payment, or stamp duty value of the property, must be Rs. 50 lakhs or more.
4. When TDS is required to be deducted
TDS shall be deducted at the earliest of the following dates:
- Date of credit of consideration amount to the account of the transferor in books of accounts; or
- Date of payment of consideration in cash or by the issuance of cheque or draft or any other mode.
5. Effect of non-submission of PAN on the rate of Tax
- Every person whose receipts are subject to deduction of tax at source (i.e., the transferor) shall furnish his PAN to the deductor or transferee.
- If such a person does not furnish PAN to the deductor, the deductor will deduct TDS at higher of the following rates:
- the rate prescribed in the Act;
- at the rate in force, i.e., the rate mentioned in the Finance Act; or
- at the rate of 20 %.
- Where the PAN provided by the transferor is invalid or does not belong to the transferor, it shall be deemed that the transferor has not furnished his PAN to the transferee and the above provisions shall apply accordingly.
6. What is the due date of depositing TDS and filing TDS return
- TDS deducted u/s 194-IA shall be paid to the government within 30 days from the end of the month in which TDS is deducted.
- TDS deposited shall be accompanied by a challan-cum-statement in Form No. 26QB.
- After depositing the TDS, the buyer of the property shall issue the TDS certificate to the seller in Form 16B.
- TDS certificate should be issued within 15 days from the due date for depositing the tax deducted.
7. How TDS is deducted and TDS return is filed
- Under Section 194-IA, every person is required to deduct TDS whether he is a resident or non-resident or into a business or not.
- Therefore, it is not worth it that every such person shall apply for TAN as the same may not be required after this single transaction.
- Therefore, there is no requirement of obtaining a Tax deduction account number (TAN) of the person who is required to deduct tax in this section.
- Only the PAN of the buyer i.e the transferee is required to file the return.
- TDS return is filed in Form 26QB wherein the following information is provided:
- PAN of transferor and Transferee
- Addresses of both the parties
- Address of immovable property for which TDS is deducted
- Sales Consideration
- TDS Deducted
- Challan details through which TDS is deposited.
- TDS returns can be filed online on the Income tax portal.
- Further, the TDS certificate is generated in Form 16B by login at https://www.tdscpc.gov.in/app/login.xhtml. Login can be generated through PAN.
8. What are the consequences of late deposition of TDS and late filing of TDS return
- In case the TDS has not been deducted, the buyer would be required to pay 1% interest per month on the amount not deducted.
- In case, the TDS has been deducted but not deposited, Interest @ 1.5% per month would be applicable in such a case.
- The Income Tax Officer may also levy a penalty of up to Rs. 1 Lakhs for Late filing of a TDS return
- In case of late filing of TDS Return, a penalty of Rs. 200 per day would be levied. However, the Penalty should not exceed the amount of TDS for which this Form has not been filed.
9. Frequently Asked Questions (FAQs)
a. Whether TDS is to be deducted on the transfer of commercial property or Residential Property?
1. TDS shall be deducted @ 1% on all Property Transactions which are above Rs. 50 Lakhs. This TDS is to be deducted on all types of Property Transactions irrespective of whether the property in consideration is a flat or a building or a vacant plot.
2. TDS is to be deducted irrespective of whether it is a Residential Property or Commercial or Industrial Property. TDS is to be deducted on all types of property transactions except Agricultural Land.
b. How TDS is deducted where consideration is paid in installments.
1. In such cases, tax has to be deducted at the time of payment of each installment.
2. As per Section 194IA, TDS is to be deducted at the time of payment. The date of transfer is not relevant as TDS is not required to be deducted at the time of transfer but is required to be deducted at the time of payment.
c. How TDS is deducted when the property is acquired on Loan?
1. TDS is deducted when the payment is made to the seller irrespective of EMIs.
2. In case property is acquired through a loan, the Financing bank/institution makes an upfront payment to the supplier of property. Whereas, Buyer makes payment to the bank/Financing Company in decided EMIs.
3. Therefore, TDS will be deducted when payment is made to the seller.
d. How TDS is deducted in cases where the supplier is an NRI?
In such case, TDS shall be deducted u/s 195 instead of Section 194-IA and TDS shall be deducted at 20% or the rate given in DTAA whichever is higher.
A detailed article on TDS on sale of immovable property by NRI.
e. Can TDS be deducted from the Capital Gain Amount?
TDS has to be deducted on the entire sales consideration irrespective of whether the seller is having capital gain or capital loss on a such sales transaction.
f. How TDS is deducted in case of more than one seller or more than one buyer?
1. In case of more than one buyer or more than one seller, the threshold limit of INR 50 Lacs is to be checked property wise not seller-wise.
2. Further, TDS is required to be deducted by every buyer from every seller where sales consideration of property exceeds the threshold limit.
|Seller||Buyers||Sales Consideration||TDS Deduction Transactions||Number of TDS return required to be filed|
|A & B (50: 50)||C||1,00,00,000||C shall deduct the Following TDS:|
A: 1% of INR 50,00,000
B: 1% of INR 50,00,000
|A||B & C (50:50)||1,00,00,000||B: shall deduct TDS of A on INR 50,00,000.|
C: shall deduct TDS of A on INR 50,00,000
|A & B (80:20)||C & D (50:50)||1,00,00,000||C shall deduct the following TDS:|
A: Shall deduct TDS on 40,00,000 (1,00,00,000*50%*40%)
B: Shall deduct TDS on 10,00,000(1,00,00,000*50%*20%)
D: shall deduct the same TDS of A & B