It is true for a fact that a buyer is subjected to multiple taxes while purchasing a property; but what one cannot ignore, however, is that multiple tax liabilities subsequently are imposed on the seller of the property too. One of such taxes is the TDS or the tax required to be deducted at source at the time of the sale. TDS payments are dealt with under section 194 and sub-sections 191 IA, 194 IB of the Income Tax. Before we get to understanding the section or the sub-sections, let’s first address the elephant in the room: TDS.
What Is TDS?
TDS, also known as tax deducted at source, is a form of a tax that is deducted as soon as a certain income is received by a person. TDS is typically deducted by the remitter of the income and then deposited to the Income Tax Department.
What is TDS Under Section 194 IA Of The Income Tax?
Sections 194IA and 194IB of the income tax deal with taxes with respect to buying or selling of property. Under these sections, TDS has to be deducted by the payer of the rent and the buyer of the property respectively.
Effective since 2013, sections 194IA and 194IB of the income tax essentially define that “a buyer of an immovable property that costs more than Rs.50 lakhs is required to deduct TDS while paying the seller”
It should be hence noted that the responsibility of deducting the TDS amount and of submission of the taxes to the income tax department lies on the buyer. In case the buyer fails to deduct and submit the due TDS at the time of purchase of a property, penal actions can lawfully be initiated against the buyer.
“Any person, being a transferee, responsible for paying to a resident transferor any sum by way of consideration, for the transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 1% of such sum as income-tax thereon,” quotes the Section 194IA of the Income Tax Act.
What Is The Rate Of TDS Deduction For Property Under Section 194 IA?
TDS on the sale of a property is at 1% for all transactions after March 31, 2021. For transactions carried out from 14 May 2020 to 31 March 2021, however, the TDS education was at 0.75%. It should also be noted that no TDS is required to be dedicated for the sale of properties that cost less than 50 Lakhs.
When Is Section 194IA of Income Tax Act Applicable?
Apart from the basics that TDS cannot be charged on the sale of properties for less than 50 lakhs and that the TDS is to be deducted + submitted by the buyer, here are a few more factors considered for the applicability of section 194 IA of the income tax-
- TDS needs to be paid on the complete amount of the property and not just on the mount above the non-taxable 50 Lakh rupees. Hence, for example, if you buy a property worth Rs. 90 Lakhs in Bengaluru, TDS will be applicable on the entire 900,000 and not just on Rs. 400,000.
- For those buying a flat in a community complex or apartments, multiple other charges like maintenance charges, club membership, car parking, etc. need to be paid. However, since September 2019, all of these said charges are now directed to be included under ‘consideration for immovable property.’ and so, are to be added to the taxable TDS amount.
- PAN Cards of the buyer, as well as the seller, are to be mandatorily presented for TDS deduction under Section 194IA. It should be noted that in case the buyer fails to obtain the seller’s PAN card, the TDS rate is increased from 1% to 20%
How To Pay TDS On Purchase Of property Under Section 194IA Of The Income Tax Act?
TDS payment under section 194 IA of the income tax needs to be made using Form 26QB.
- TDS needs to be paid within 30 days from the last day of the month in which the sale of the property was completed
- TDS can be paid online or deposited offline, by tendering the physical challan to an authorized bank
- Once the TDS is paid, the bank updates the details on the Income Tax department’s website and the buyer receives ‘Form 16B’ which then needs to be submitted to the seller within 15 days. Form 16 b can also be downloaded from the TRACES portal
What Is Section 194IB Of The Income Tax Act?
As per section 194B of the income tax act, individuals or Hindu Undivided Families (who aren’t liable for audit under Section 44AB) can deduct TDS for rent payment made to an Indian resident. However, the total rent amount needs to be more than Rs.50,000 per month for this tax to be applicable.
“Rent” under section 194 IB can be defined as any payment made for a lease, tenancy, sub-lease, or other arrangements for properties like-
- Land with a factory
- Building with a factory
TDS on rent under section 194 UB should be deducted on either of the events, whichever is earliest –
- When rent is credited for the last month of the previous year or last month of tenancy (in case the property is not occupied anymore)
- Or, when rent is paid by cheque, draft, cash, or other modes
What Is The TDS Rate Under Section 194 IB?
The rate of TDS under Section 194IB of the Income Tax Act is 5%. Even under section 194 IB, the tenant needs to obtain and present the owner’s PAN card. On failing to do so, the TDS increased from 5% to 20%.
How To Pay TDS Under Section 194IB?
TDS payment under section 194 IB of the income tax needs to be made using Form 26QC.
- TDS can be paid online or offline through an authorized bank
- Form 16C needs to be collected and submitted to the landlord
When Should TDS Under Section 194IB Be Deposited?
- If the rent for a property is paid on the behalf of the government, TDS needs to be deposited on the same day as the remittance of the rent.
- However, if the rent is not paid on the behalf of the government, TDS needs to be deposited within 7 days from the last date of the month in which the deduction was carried out.
- If the payment was made in the month of March, the TDS deposit needs to be done before April 30th of the year.
What Are The TDS Deductions On Properties Sold By An NRI?
The TDS education rate is typically very high in the case of properties sold by an NRI since the government also deducts an additional capital gains tax from NRIs along with the TDS. When an NRI sells the property, the buyer is liable to deduct TDS at 20%, and in case the said property has been sold before 2 years, the TDS is applicable at 30%.
Final Thoughts: What Happens If A Property Buyer Fails To Pay TDS?
The Indian law and section 194 IA of income tax mandate that a buyer should deduct the applicable TDS, after the purchase of a property, on the transaction value and submit it with the government. However, a property buyer who fails to deposit the TDS within the recommended time period may have to suffer serious legal consequences like a monetary penalty in the form of interest or imprisonment of up to 7 years.
Laws like TDS on sale of property, wherein the purchaser of a property has to deduct tax at source, are introduced by the Indian government in an attempt to curb the use of black money at the time of purchase of an immovable property It is recommended that one educated themselves about taxation rules and regulations in order to avoid such severe consequences.