TDS on Purchase/Sale of Property under Income Tax Act, 1961

The transfer of immovable property such as residential flats, commercial buildings, or plots often involves a significant transaction value. To bring transparency and ensure tax compliance, the Indian Income Tax Act mandates deduction of tax at source (TDS) on such transactions. Here's a complete overview of the TDS liability, its applicability, calculation, and procedural compliance.

1. Legal Provision: Section 194-IA of Income Tax Act, 1961

As per Section 194-IA, any person (purchaser/transferee) responsible for paying to a resident transferor any sum by way of consideration for transfer of immovable property (other than agricultural land) is required to deduct TDS.

Key Highlights of Section 194-IA:

• Applicable from: 1st June 2013.
• TDS Rate: 1% of the sale consideration.
• Threshold: Applicable if sale consideration is ₹50 lakhs or more.
• Recipient: Seller must be a resident of India.
• Form for payment: Form 26QB.
• Form for certificate: Form 16B.

2. Value on Which TDS is Deducted

The TDS must be deducted on the higher of the following two values:

• The actual sale consideration, or
• The stamp duty value of the property

This amendment was introduced vide Finance Act 2022, effective 1st April 2022.

3. Property Types Covered

TDS under Section 194-IA applies to:

• Residential property
• Commercial property
• Land (excluding agricultural land)

Agricultural Land Exception:

TDS is not applicable if the property is an agricultural land situated in a rural area as defined under Section 2(14)(iii).

Urban vs Rural Agricultural Land:

• Rural Agricultural Land: Located beyond:
• 2 km from a municipality with population < 10,000
• 6 km from a municipality with population between 10,000 and 1 lakh
• 8 km from a municipality with population > 1 lakh
• → No TDS applicable
• Urban Agricultural Land: Within above limits
• → TDS applicable

4. TDS Calculation Example

Scenario:

• Sale Consideration: ₹65,00,000
• Stamp Duty Value: ₹70,00,000
• TDS Rate: 1%

TDS Deductible = 1% of ₹70,00,000 = ₹70,000

5. Frequently Asked Questions (FAQs)

1. What is the Due Date for Payment of TDS to Government?

• The buyer must deposit TDS within 30 days from the end of the month in which TDS is deducted.
• Payment is made through Form 26QB (challan-cum-statement).

2. When is TDS Deduction Not Necessary?

• Sale consideration is less than ₹50 lakhs
• Property is rural agricultural land
• Seller is not a resident, i.e., NRI (Section 194-IA doesn't apply — instead, Section 195 applies)
• Transfers between government entities

3. Implications of Non/Late Filing of TDS Statements

For Buyer:

• Penalty under Section 234E: ₹200 per day till filing
• Late filing fee under Section 271H: ₹10,000 to ₹1,00,000
• Interest under Section 201(1A):
• 1% per month for non-deduction
• 1.5% per month for late payment

For Seller:

• Credit for TDS not reflected in Form 26AS
• Possible mismatch in return processing

4. Is TDS Applicable on Property Sold by NRI or Non-Resident?

Yes, but not under Section 194-IA. In such cases:

• Section 195 applies.
• TDS must be deducted at rates in force (can be up to 20% or more depending on nature of capital gain).
• TAN is mandatory for buyer.
• Form 15CA/CB compliance also required.

5. What If There Are Two Sellers and Combined Value is ₹60 Lakhs?

If property value  is below ₹50 lakhs, and property is separately sold, TDS may not apply.

However, if it is a single transaction of ₹60 lakhs, even with 2 sellers, TDS must be deducted.

7. Does This Apply to Agricultural Land?

• Rural Agricultural Land: No TDS under Section 194-IA
• Urban Agricultural Land: TDS is applicable if value ≥ ₹50 lakhs

8. Penalties on Non-Filing of Form 26QB

• Section 234E: ₹200/day for delay
• Section 271H: ₹10,000 to ₹1,00,000 for late or incorrect filing
• Interest u/s 201(1A): As mentioned above

9. Is TDS Deducted on Sale Value Including GST?

As per CBDT Circular No. 23/2017 dated 19th July 2017, TDS is to be deducted on amount excluding GST, if GST is separately mentioned in the invoice.

Reference:
Circular No. 23/2017 - TDS under section 194-IA shall not include GST if separately indicated.

10. Is Buyer Required to Obtain TAN for TDS Deduction and Filing?

No, the buyer is not required to obtain TAN for TDS deduction under Section 194-IA.

Payment and filing are done through Form 26QB using PAN of buyer and seller.

Conclusion

Compliance with TDS on property transactions is crucial for both buyers and sellers. Timely deduction, payment, and filing ensure smooth credit of TDS to the seller and avoid penalties for the buyer. With evolving laws and frequent updates, consulting a professional Chartered Accountant can ensure error-free compliance and peace of mind.

For personalized assistance with TDS compliance and property transaction advisory, connect with our team at GAV & Associates.

Info@Gavandassociates.com