Caveat Emptor: Deduct TDS on property purchases, or else…

TDS is applicable on property transactions when the transaction value exceeds Rs 50 lakh. This applies to both residential and commercial properties. “The Finance Act, 2013, had introduced section 194-IA, providing for deduction of tax at source (TDS) in case of purchase of an immovable property (other than agricultural land) from a resident in India,” said Vijay Bharech from Deloitte Haskin & Sells LLP.

The rate of TDS differs based on whether the seller is a resident of India or a non-resident. “In case of NRI sellers, the tax is required to be deducted at the rate of 20 percent plus applicable surcharge and cess if the property is held as a long-term capital asset (more than 24 months), and 30 percent plus surcharge and cess if the property is a short-term capital asset (less than 24 months),” said Yeeshu Sehgal, Head of Tax Market, AKM Global, a tax and consulting firm. In case of resident sellers, the TDS rate is 1 percent.

Buyer's responsibilities 

It’s the buyer of the property who is responsible for deducting the TDS. It is important to note that the TDS should be deducted from the payment made towards the consideration of the property. The consideration value is the amount to be paid by the buyer to the seller to acquire the property. “The buyer is required to deduct TDS at the rate of 1 percent on each instalment if the sale consideration or stamp duty value of the property is Rs 50 lakh or more,” said Bharech.

If the price of the house property exceeds Rs 50 lakh, then the tax needs to be deducted on the entire sum, and not just the excess over Rs 50 lakh. For example, if the sale price is Rs 80 lakh, then at 1 percent, the tax liability would be Rs 80,000 and not Rs 30,000.

Similarly, if the sale consideration or stamp duty value of the property is Rs 80 lakh and the buyer is making the payment to the seller in five equal instalments of Rs 16 lakh each, then TDS has to be deducted at 1 percent (Rs 16,000) on each instalment of Rs 16 lakh, explained Bharech.

If the seller does not provide the permanent account number (PAN) or does not have one, then TDS is required to be deducted at a flat rate of 20 percent. In such a situation, it is advisable that the seller obtain a PAN before selling the property.

Also read: Planning to buy a house? Harvest your capital gains & avoid taxes

Deposit TDS within 30 days

Once deducted, the TDS amount needs to be deposited with the government within the given time period. “The buyer is required to deposit the tax within 30 days from the end of the month in which the deduction of tax is made,” said Bharech. It is important to ensure that the TDS is deposited within the due date, as failure to do so may result in penalty and interest charges.

Consequences of non-compliance

Non-compliance with TDS regulations can result in penalty and interest charges. The penalty for non-compliance with TDS regulations is equal to the amount of TDS that was not deducted or deposited. Interest charges are also applicable on the TDS amount that was not deposited with the government within the due date. It is, therefore, important to ensure compliance with TDS regulations to avoid penalties and interest charges. Paying this penalty and interest rate charges devolve upon the buyer and not the seller.

Deposit TDS online

To deposit TDS for a property transaction, buyers need to go to the TIN Protean (formerly NSDL eGov) website and click on the "Online form for furnishing TDS on property (Form 26QB)" under the "TDS on sale of property" section.

After that, the buyer should select the applicable challan as "TDS on Sale of Property," and fill out the complete form with all relevant details such as PAN of the seller and buyer, communication details, property details, amount paid or credited, and tax deposit details. If the property is being sold or bought jointly (by two or more people), then the details of all need to be furnished.

After submitting the form, a confirmation screen appears, and a unique acknowledgment number is generated, which buyers should save for future reference. Next, they should click on "Print Form 26QB" to print the form for their records, and then click "Submit to the bank" to proceed further to make the payment.

Buyers should proceed to the payment page through the internet banking facility of authorised banks listed on the website. After successful payment, a challan counterfoil will be displayed containing the CIN, payment details, and the bank name through which the e-payment has been made. This serves as proof of payment.

Download TDS certificate, maintain records

“Once the taxes are deposited, the buyer is also required to issue form number 16B (that shows the TDS deducted and deposited) to the seller within 15 days from the due date of furnishing form 26QB,” said Bharech.

To download form 16B, you need to proceed to the TRACES portal (www.tdscpc.gov.in) after five days of submitting form 26QB. To download form 16B, first register and login on the TRACES portal as a taxpayer using your PAN. Then select "Form 16B (For Buyer)" under the "Downloads" menu. Enter the necessary details such as the assessment year, acknowledgment number, PAN of the seller, and click on "Proceed."

Once you see the confirmation screen, click on "Submit Request" to proceed. After submission, you will receive a success message, and you should note the request number to search for the download request. Finally, click on "Requested Downloads" to download form 16B. Once you have the certificate, share it with the seller.

During the negotiation process, it is recommended that the buyer reminds or clarifies with the seller that he (the buyer) is responsible for deducting and depositing 1 percent of the property's value as TDS, which will be subtracted from the agreed-upon price.