Tax Deduction at Source (TDS) is a system where tax is deducted from income at the point of payment to the recipient. When buying property, individuals must deduct this tax before paying the seller and file TDS returns quarterly.
The Tax Deduction and Collection Account Number (TAN) is a unique 10-digit alphanumeric code required for tax deduction and collection, issued by the Income Tax Department. However, under Section 194IA, buyers of immovable property are not required to have a TAN.
Section 194IA mandates that buyers deduct TDS when paying for immovable property, excluding agricultural land. This applies to residential and commercial properties, as well as land. The TDS rate is a flat 1% on the property’s value.
TDS is deducted at 1% of the higher of the sale consideration or the stamp duty value (SDV) if the property value exceeds Rs. 50 lakhs. This includes additional fees like club membership, parking, utilities, maintenance, and any advance fees related to the property transfer.
Buyers must deduct TDS on the total property value, not just the amount exceeding Rs. 50 lakhs. For example, if a property costs Rs. 90 lakhs with an additional Rs. 5 lakhs in fees, TDS is calculated on Rs. 95 lakhs. TDS must be deducted on each installment if the payment is made in parts. Without the seller’s PAN, the TDS rate increases from 1% to 20%.
TDS on immovable property should be paid using Form 26QB within 30 days from the end of the month in which TDS was deducted. The buyer can obtain Form 16B from the seller as proof of payment. Form 26QB, available on the Income Tax website, requires detailed information about the property, buyers, sellers, and tax deposits.
TDS should be deducted at the time of crediting the amount to the seller or at the time of payment, whichever comes first.
To claim the TDS amount, the seller must provide their PAN to the buyer, who will then submit Form 26QB. The seller should verify that the deducted taxes appear in their Form 26AS (Annual Tax Statement). The seller can also obtain Form 16B from the buyer as proof of TDS payment.
Non-payment of TDS can result in penalties up to Rs. 1 lakh under Section 271H. Interest of 1% per month is charged if tax is not deducted, and 1.5% if the tax is deducted but not deposited on time.
A fee of Rs. 200 per day is imposed under Section 234E for late filing of Form 26QB, starting from the due date until the return is filed. However, if the seller has declared and paid capital gains tax, this fee may be reduced or waived.
Complying with the TDS provisions under Section 194IA is essential for property buyers to avoid hefty penalties.
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