TDS on Sale of Property

CBDT through Finance Act 2013 brought TDS on sale of immovable property. In Finance Act 2013, a new sub-section has been inserted in section 194I. As per newly inserted section 194IA, buyer of property shall be liable to deduct TDS while making payment to seller. Buyer of property will deduct TDS at 1% on payment made to seller of property. This amendment has increased compliance burden on individual buyer and seller of property. This amendment will also lead to blockage of working capital on account of TDS deduction and will increase cost of compliance for buyer as buyer is required to file TDS return in form 26QB.

Let’s discuss all critical provisions relating to TDS on Sale of Property in simplified way:

Applicability of section 194IA of Income tax Act:

Section 194IA of Income Tax Act: Any person, being a transferee, responsible for paying to a resident transferor any sum by way of consideration for 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 issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 1% cent of such sum as income-tax thereon. However No deduction under this section shall be made where the consideration for the transfer of an immovable property is less than INR 50 Lakh.

On analysis of Section 194IA following points come into the picture:

• Property should be immovable
• Transferor (seller) must be resident of India
• Mode of payment does not matter, even payment can be made in cash also
• Consideration should be INR 50 Lakh or more
• TDS shall be deducted at 1% of consideration paid or payable

Key definitions relating to section 194IA of Income Tax Act:

1) “agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;

2)“consideration for transfer of any immovable property” shall include all charges of the 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 transfer of the immovable property;’

3)”immovable property” means any land (other than agricultural land) or any building or part of a building.

Cases where section 194IA of Income tax Act shall not apply:

• If transaction value of immovable property is less than INR 50 Lakh.
• Cases where transfer involves sale or transfer of Agriculture Land
• Transactions other than transfer of immovable property
• Transaction covered u/s 194LA of income tax act

When liability to deduct TDS arise:

As per section 194IA of Income Tax Act, buyer is liable to deduct TDS while making payment to seller of property. If payments are being made in parts then each payment should be made after deducting TDS on such each payments. Once TDS is deducted, buyer is liable to deposit TDS in government account within 30 days from the month in which TDS is deducted.

How to make TDS payment on sale of property:

To make the TDS payment deducted on purchase of property, Form 26QB is required to be filed by buyer of property. Form 26QB is required to be submitted within 30 days from the month in which TDS is deducted. Here it is clear that TDS payment can be made while filing TDS return in Form 26QB.

How to file TDS Return (Form 26QB) for sale of property:

Form 26QB (TDS Return on sale of Property) can be file at TIN-NSDL. Following details shall be required while filing form 26QB:

• Date of Agreement for sale of immovable property
• Date of payment of consideration to seller. Whether payment made in parts or lump sum
• PAN of Seller and Buyer
• Complete address of Seller & Buyer
• Type of Property whether land or other
• Complete address of property

Once Form 26QB has been filed along with payment of TDS then buyer is liable to issue Form 16B to seller of property. To issue form 16B, buyer is required to create user ID and Password at TRACES and can raise request for downloading of form 16B.

If transferor is Non-resident then form 27Q will be required to file and TDS u/s 195 will be deducted.

Consequence of Late filing of form 26QB and late deduction of TDS:

• If buyer did not deducted TDS while making payment to seller, then buyer will be liable to pay interest at 1% per month and for part of the month.
• If buyer did not filed form 26QB within 30 days of deduction of TDS then interest will be liable to pay at 1.5% per month and part of the month. Further late fee will also be levied at INR 200 per day from the next date of due date of filing form 26QB to the date of filing form 26QB.
• Interest at 1% or/and 1.5% shall be calculated on TDS amount which was short deducted or/and late paid.

Other important point about TDS provisions on sale of property prescribed u/s 194IA:

• There is no relevancy of Stamp duty value while deducting TDS on sale of property. Stamp duty value may be less than or more than INR 50 Lakh. Further stamp duty paid on purchase of property shall not become part of consideration.
• Buyer can file TDS returns without obtaining TAN (Tax Deduction Account Number)
• If seller of property does not furnish PAN card then seller will be liable to deduct TDS as per section 206AA of income tax act. It means seller shall be liable to deduct TDS at 20% if PAN is not furnished by seller of property.
• While calculating consideration on sale of property, charges of the 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 transfer of the immovable property, shall be included in consideration. However consideration shall not include GST charge by seller while calculating TDS on sale of property.