Section 194IA of the Income Tax Act, introduced in 2013, mandates the deduction of Tax Deducted at Source (TDS) on the purchase of immovable property (House Property, Commercial Property, Plot, or unconstructed land) valued above a specified amount. The buyer is responsible for deducting TDS at a prescribed rate and depositing it with the government. This provision aims to ensure tax compliance in property transactions and help track high-value deals.
What is section 194IA?
Section 194IA offers the deduction of TDS on the purchase of immovable property at the time of a transaction. Until the introduction of Section 194IA, the Income Tax Act for TDS, and the sale of immovable property by the non-resident and compulsory acquisition of particular immovable properties.
The Finance Act of 2013 introduced Section 194IA to capture the transaction of purchase of immovable property by an Indian resident taxpayer.
A person, when he is a transferee, is responsible for paying an amount as a consideration to an Indian resident transferor against a transfer of any immovable property and must deduct TDS. The sale of that consideration needs to be greater than a value of Rs. 50 lakhs.
In accordance with Section 194IB, the payment of a lease, sublease, or tenancy in any of the following properties may be regarded as “rent.”
- Plant
- Furniture
- Fittings
- Land
- Land with factory
- Building with factory
- Equipment or Machinery
Requirements of Section 194IA
When a buyer buys immovable property (i.e. a building or part of a building or any land other than agricultural land) costing more than Rs 50 lakhs, he has to deduct tax at source (TDS) when he pays the seller. This has been laid out in Section 194-IA of the Income Tax Act since 1st June 2013.
- The buyer has to deduct TDS at 1% of the total sale amount. Please note, the buyer is required to deduct TDS, not the seller
- TDS is required to be deducted only if total purchase value is Rs 50 lakh or more
- If the payment is made by instalments, then TDS has to be deducted on each instalment paid.
- ‘Consideration for immovable’ property shall include all charges like nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to the transfer of the immovable property. This is applicable for immovable property purchased on or after 1 September 2019.
- TDS is to be paid on the entire purchase value.
Example for TDS on Sale of Property, if you have bought a house at Rs 55lakh, you have to pay TDS on Rs 55 lakh and not on Rs 5 lakh (i.e. Rs 55 lakh – Rs 50 lakh). This is applicable even when there is more than 1 buyer or seller. Post the budget 2019 amendment to section 194-IA, in the above example, if on 1 September 2019, you have paid Rs 2 lakh towards parking fee, Rs 1 lakh for water facility fee and Rs 1 lakh for electricity fee, your sale consideration would be Rs 59 lakh (55+2+1+1). You will have to pay TDS on Rs 59 lakh @ 1%. Your TDS payable would be Rs 59,000. - Buyer of the property need not obtain a TAN (Tax Deduction Account Number) for depositing TDS with the government. You can make the payment using your PAN.
- For the purpose of depositing TDS, buyer will have to obtain the PAN of the seller, else TDS must be deducted at 20%.
- TDS is deducted at the time of payment (including instalment payments) to the seller
- The TDS on the immovable property has to be paid using Form 26QB within 30 days from the end of the month in which TDS was deducted.
- After depositing TDS to the government, the buyer is required to furnish the TDS certificate in form 16B to the seller. This is available around 10-15 days after depositing the TDS. The buyer is required to obtain Form 16B and issues the form to the seller.
Payment of TDS Under Section 194IA
Any money deducted in accordance with Section 194IA must be deposited with the central government. The deadline is 30 days after the month’s end when the deduction occurs. The statement-cum-challan in the 26QB form ought to be included. The deposit can be made to any other authorized banking institution via electronic remittance.
Penalty of the TDS Non-Payment
The registrar and sub-registrar office submit the Annual Information Return (AIR) to the income tax division. Any immovable property’s purchase and sale details, as well as its value, are contained in such AIR.
Therefore, the income tax agency records it if a purchaser does not deduct TDS, does not deposit TDS, or deducts TDS at a reduced rate. The purchaser will receive notification of such default from the income tax department.
Interest on no TDS deduction, penalty, interest on non-payment, and prosecution may all be applicable depending on the form of default.
Steps to Pay TDS through Challan 26QB and to Obtain Form 16
Step 1: Log in to your account on the Income Tax e-filing portal. Select e-File > click on e-Pay Tax
Step 2: Click on ‘+ New Payment’
Step 3: Click on the proceed button on the tab ‘26QB- TDS on Property’
Note: In the next few steps, you will have to add the following details:
- Add Buyer’s Details
- Add Seller’s Details
- Add Property Transferred Details
- Add Payment Details
Step 4: Add Buyer’s Details
All your details will be auto-filled, but you can also change them if needed. After entering the details, click on ‘Continue’
Step 5: Add Seller’s Details
Step 6: Add Property Details
Add all the property details like type, address and also the sale details like date of agreement, value etc. The tax amount will be calculated automatically. Once done, click on ‘continue’
Step 7: Add Payment Details
Select the payment mode and proceed to complete the payment. Once the payment is done, a challan will be generated.
Step 8: Register in TRACES
- If you are a first-time user, register on TRACES as a Tax Payer with your PAN and the Challan details of the tax payment.
- Once you register, you will be able to obtain approved Form 16B (TDS certificate) and you can issue this Form to the Seller.
- Check your Form 26AS seven days after payment. You will see that your payment is reflected under “Details of Tax Deducted at Source on Sale of Immovable Property u/s 194(IA) [For Buyer of Property]”.
- Part F gives you details such as TDS certificate number (which TRACES generates), name and PAN of deductee, transaction date and amount, acknowledgement number (which is the same as the one on your Form 26QB), date of deposit and TDS deposited.
Step 9: Download your Form 16B
- After your payment in Form 26AS has been reflected, log in to TRACES. Go to the Download tab at the tab and click on “Form-16B (for the buyer)”.
FAQs
Who is liable to deduct TDS on the sale of the property?
The property buyer is liable to deduct TDS and ensure to deposit the same in the treasury of the government.
What is the time limit stipulated to pay TDS on a property?
TDS on transfer of immovable property should certainly be paid within 30 days after the month’s end in which the deduction is done.
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