If buying a house is a cumbersome process for the buyer due to the document checks, loan application and legal procedures, it is no less an arduous task for the seller, too.
In a two-part series, Moneycontrol is attempting to simplify one aspect of the process – taxation of the sale consideration, which is the value of the property agreed upon by the buyer and the seller.
In our previous article, focusing on the buyer, we told you about the need to deduct tax at the rate of 1 percent (20 percent or 30 percent, depending on the holding period, if the seller is an NRI), before transferring the amount to the seller, the mode of depositing the amount and so on. In this part, the focus shifts to the seller.
Also read: Buying your dream house? Be ready to pay five additional taxes and charges
Seller is responsible for accurate disclosures
Although the responsibility of deducting and depositing TDS lies with the buyer, the seller should also furnish information and documents to the buyer for the correct execution of TDS. After all, TDS is being deducted from the consideration the seller is receiving, and it can be claimed back, if the seller's income is either not taxable or falls below the TDS rate.
Let’s read what the seller should ensure.
If the property is jointly owned and there are multiple sellers involved, documents and details of all the sellers, along with their respective share, should be conveyed to the buyer. This will enable the buyer to transfer the money according to the share of each owner and deduct TDS accordingly.
If the seller fails to provide these details, the buyer may face challenges in executing the TDS process correctly.
Similarly, if there are joint buyers, each buyer should make his/her share of the TDS payment. This ensures that the TDS is executed accurately and in compliance with the regulations. Ultimately, both the buyer and the seller need to work together to ensure that the TDS process is executed smoothly and in accordance with the applicable laws and regulations.
Collect the TDS certificate
Upon receiving payment from the buyer, the seller should request a TDS certificate. The seller should then verify the TDS details on the certificate, including the TDS amount, PAN and name details, Challan Identification Number (CIN), and deposit date.
If any discrepancies are found, the seller should bring them to the attention of the buyer.
After a few weeks of the buyer depositing the TDS, the seller should check Form 26AS to verify that the TDS amount has been credited to his/her account. Form 26AS is a statement of tax credit that reflects the tax deducted on behalf of the taxpayer.
Also read: Getting started with I-T return filing? Verify your Form 26AS and Annual Information Statement first
Claim refund if tax liability is lower
“A refund can be claimed in the income return, if the seller’s overall tax liability is less than the taxes deducted,” said Vijay Bharech from Deloitte Haskin Sells and LLP. For instance, one sells a property worth Rs 80 lakh in FY 2023-24, and the buyer deducts Rs 80,000 (1 percent of Rs 80 lakh) as TDS, and deposits it with the government.
If the seller's total income, including the sale of the property, falls below Rs 5 lakh, they are eligible for a tax rebate under Section 87A, making their tax liability zero. In this scenario, the seller can claim a refund of the Rs 80,000 deducted by the buyer as TDS.
If there is no income, other than the capital gains derived from the same property, one can claim back the TDS as refund, if the seller decides to reinvest the long-term capital gain in a residential property or in capital gain-exemption bonds (also known as 54EC bonds), provided the stipulated period and investment limit is met.
Also read: Sold a property and faced with capital gains? Look at REC Capital Gains Tax Exemption Bonds-Series-XVI
How to claim TDS refund
If eligible, the seller can claim a TDS refund by filing an income-tax return. “TDS deducted can be adjusted against the tax liability of the seller while filing income return and if he doesn’t have any tax liability, it will be credited as refund against his PAN,” says Yeeshu Sehgal, Head of Tax Market, AKM Global, a tax and consulting firm.
Even NRIs need to file the income-tax return to claim TDS refund. “It takes significant time as the tax return can be filed only after the end of the particular financial year in which the sale is made,” adds Sehgal.
Therefore, “to avoid the huge blockage of funds in the form of TDS, the lower tax withholding certificate can be applied by the seller under the Income-Tax Act, 1961,” says Sehgal.
It is also advisable to seek professional advice to ensure compliance with TDS regulations and avoid legal and financial implications.