How to File TDS on Sale of Property in India

When a property is sold in India, it is subject to Tax Deducted at Source (TDS) under Section 194-IA of the Income Tax Act, 1961. The buyer of the property is responsible for deducting TDS and depositing it with the government. In this blog, we will explore everything you need to know about filing TDS on the sale of property, the procedure, and the necessary forms.

Overview of Section 194-IA: TDS on Sale of Property

Under Section 194-IA, TDS is applicable on the sale of immovable property (other than agricultural land) when the sale consideration exceeds ₹50 lakh. The buyer is obligated to deduct tax at the rate of 1% of the sale consideration and deposit the deducted TDS with the government.

Key Points to Note:

1. Applicability: TDS is applicable on the sale of land, building, or any immovable property.

2. Threshold Limit: TDS is applicable only if the sale consideration exceeds ₹50 lakh.

3. Rate of TDS: TDS is deducted at a rate of 1% of the total sale amount.

4. Responsibility of Deductor: The buyer is responsible for deducting and remitting the TDS to the Income Tax Department.

5. Non-residents: In case the seller is a non-resident, the TDS rate will increase to 20% under Section 195 (with the possibility of a lower rate through DTAA).

Who Needs to Deduct TDS?

• Buyer: The buyer of the property is responsible for deducting TDS at the time of making the payment to the seller.

• Seller: The seller is not required to deduct any TDS but should ensure that TDS is deducted by the buyer at the time of sale.

Steps to File TDS on Sale of Property

1. Collect the Necessary Details

Before deducting TDS, the buyer should collect the following details:

• PAN of the seller: TDS deduction is only valid if the seller provides their PAN. If the seller does not provide their PAN, the TDS will be deducted at 20% instead of 1%.

• Sale Agreement: Ensure that the sale agreement mentions the total sale consideration, including any adjustments made during the transaction.

• Property Details: Mention the property details, including its type and address.

2. Deduct TDS at the Time of Payment

TDS must be deducted at the time of making the payment to the seller or at the time of crediting the payment to the seller’s account. The TDS rate is 1% for residents and 20% for non-residents (in case of non-residents, the buyer needs to ensure the correct TDS rate, based on the applicable Double Taxation Avoidance Agreement (DTAA)).

Example:

• Sale Price of Property: ₹60,00,000

• TDS Deduction at 1%: ₹60,00,000 × 1% = ₹60,000

• Amount Paid to Seller: ₹60,00,000 - ₹60,000 = ₹59,40,000

3. Deposit TDS with the Government

Once TDS is deducted, the buyer is required to deposit the TDS with the Income Tax Department within 7 days from the end of the month in which the deduction is made. This can be done using Challan 26QB through the TRACES portal or the Income Tax Department’s online portal.

Steps to Deposit TDS:

1. Log in to the TRACES portal or visit the Income Tax Department’s website (https://incometaxindiaefiling.gov.in).

2. Select e-Payment of TDS and choose Challan 26QB.

3. Fill in the details such as the buyer’s PAN, seller’s PAN, property details, and payment amount.

4. Pay the amount online via net banking or any other available payment options.

5. After successful payment, download the Challan 26QB receipt as proof of payment.

4. Issue Form 16B to the Seller

After depositing the TDS, the buyer must issue Form 16B to the seller. This form acts as a TDS certificate and provides details of the TDS deducted and deposited with the government.

Steps to Issue Form 16B:

1. Log in to the TRACES portal.

2. Under "TDS Reconciliation", click on "Form 16B".

3. Enter the required details such as the seller’s PAN and other relevant information.

4. Download Form 16B, which contains details of the TDS deducted.

5. Issue the downloaded Form 16B to the seller.

5. File TDS Returns (Form 26Q)

As per the TDS return filing requirements, the buyer is also required to file Form 26Q (quarterly TDS return) for the payment of TDS. This return reports the TDS deducted and remitted to the government.

Form 26Q includes details of all non-salary payments on which TDS has been deducted, including the sale of immovable property.

You can file Form 26Q via the TRACES portal or the Income Tax e-filing portal.

6. Adjust TDS in the Seller’s Income Tax Return

Once the TDS is deducted and the Form 16B is issued, the seller can claim the deducted TDS as a tax credit when filing their income tax return. This can help reduce their tax liability or even lead to a refund if the tax deducted exceeds the total tax payable.

Important Considerations

1. No TDS if Sale Amount is Less Than ₹50 Lakh:TDS under Section 194-IA is not applicable if the sale consideration is less than ₹50 lakh. If the transaction amount is below ₹50 lakh, the buyer is not obligated to deduct TDS.

2. Non-Resident Sellers:If the seller is a non-resident, the buyer must still deduct TDS at 1% of the sale consideration. However, for non-resident sellers, the TDS rate is usually higher, at 20% (or the rate as per DTAA). It’s essential to check whether the seller is a resident or non-resident to determine the correct TDS rate.

3. TDS and Capital Gains Tax:TDS under Section 194-IA is separate from the capital gains tax on the sale of property. The seller must pay capital gains tax on the profit made from the sale of the property, which will be determined based on the sale price and the acquisition cost. TDS is not an advance tax for capital gains tax but is a separate tax requirement.

4. Late Filing and Penalties:Failure to deduct or deposit TDS on time can lead to penalties and interest charges under Section 271C of the Income Tax Act. The buyer must also ensure timely filing of TDS returns to avoid penalties.

Conclusion

TDS on the sale of property under Section 194-IA is an important tax compliance requirement for buyers and sellers in real estate transactions. Buyers need to deduct TDS on the sale consideration exceeding ₹50 lakh and deposit it with the government. They also need to issue Form 16B to the seller and file the quarterly TDS return.

Sellers can use the TDS deducted to adjust their final tax liability when filing their income tax return.

It is important for both buyers and sellers to understand the TDS requirements and ensure compliance to avoid penalties. If you are unsure about the process, it is advisable to consult a tax professional or chartered accountant to ensure smooth compliance with tax laws.