TDS on purchase of property from a resident in India

In order to check the rampant use of black money in immovable property transactions, the government of India has introduced a law, wherein, the purchaser of a property has to deduct tax at source, while paying the seller for his property.

Properties that are covered

Section 194IA of Income Tax Act, requires a buyer to deduct tax at the rate of 1% of the sale consideration, if the value of the transaction is Rs 50 lakhs or more. This section covers residential property, commercial property, as well as land. However, transactions pertaining to the purchase of agricultural land, are not covered under this provision.

When to deduct the TDS and how to pay it

The purchaser of the property has to deduct the TDS, either at the time of executing the conveyance deed, or at the time of payment of advance in case any advance is being paid before the execution of the conveyance deed. The buyer has to deposit the TDS amount to the credit of the central government, within 30 days from end of  the next month in which the tax is so deducted. For payment of the TDS and furnishing other particulars, you have to fill in Form-cum-challan No 26QB. If a property has more than one buyer and/or seller, you need to fill in separate Form 26QB for each set of buyer and seller. The details of all buyers and sellers, have to be submitted in each Form 26QB.

Details required for payment of the TDS

It is the buyer who has to comply with the requirement of deducting TDS and paying the amount to the central government. Detailed instructions for filling up the form and payment of tax can be found at the following link: http://www.incometaxindia.gov.in/Pages/tds-sale-of-immovable-property.aspx

Generally, every person who is responsible for deducting TDS has to obtain a TAN (tax deduction account number). However, in case of TDS on immovable property, the buyer does not have to obtain the TAN. You need to provide details like name, address, PAN, mobile number and email id of the seller as well as buyer, in Form 26QB. You also need to provide the complete address of the property, along with the date of agreement, total value of consideration, date of payment, etc.

The buyer should ensure that the PAN of the seller is correct. Otherwise, the seller will not be able to get the credit for tax deducted by the buyer, as the credit shall flow on the basis of PAN card details furnished in Form 26QB.

The TDS can be paid online or deposited offline, by tendering the physical challan to an authorised bank. The bank will then update the details on the income tax department’s website. Once the TDS has been deposited, the buyer has to download the TDS certificate in Form No 16B, from the website of the Income Tax Department and furnish it to the seller within 15 days.

Lower deduction or nil deduction of TDS

Some TDS provisions provide for the payee to either approach the income tax officer for issue of a certificate, so that the payer shall deduct tax at a lower rate or nil rate, or in some cases the payee can just furnish a declaration for nil TDS. However, there is no such provision for TDS on immovable property. The buyer has to mandatorily deduct tax at source, where the consideration exceeds Rs 50 lakhs, in respect of each set of buyer and seller.

(The author is a taxation and home finance expert, with 30 years’ experience)