TDS On Sale Of Immovable Property: Concept & Process To File

The term Property denotes a capital asset that includes flats, buildings, and even a plot of land. Further, the main reason for the investors to invest in property is to make a profit by selling the same at a higher rate. Further, an immovable property attracts real estate returns, as a result, transactions including purchase and sale of Immovable Property is quite common these days. However, it shall be considerate to note that buying and selling of property include various Tax Implications. In this blog, we will discuss the concept and procedure to file TDS on Sale of Immovable Property.

Concept of TDS on Sale of Immovable Property

The Finance Bill of the year 2013 has proposed that the purchaser of immovable property, other than rural agricultural land, worth Rs 50 lakhs or more is needed to pay a withholding tax at the rate of 1 percent from the consideration or amount payable to a resident transferor.

Governing Section for TDS Deduction on Property

Section 194A of the Income Tax Act 1961 deals with the provisions concerning TDS on sale of Immovable Property, or we can say TDS Deduction on Property.

However, in the case where the seller is an NRI (Non Resident of India), then, in that case, instead of section 194 A, section 195 of the Income Tax Act 1961 will prevail.

Reason for Introducing TDS on Sale of Immovable Property

The main reason behind the implementation of the concept of TDS on Sale of Immovable Property are as follows:

1. To Bring back the Black Marketing Amount, and;
2. To Reduce the cases of Corruption in the Real Estate Sector;

Rules for TDS Deduction on Immovable Property

The rules for TDS Deduction on Immovable Property are as follows:

1. The property in question must be immovable property, such as land, building, or a part of land or building;
2. TDS does not apply to agricultural land;
3. In  the case where the seller is an NRI (Non Resident of India), then, in that case, instead of section 194 A, section 195 of the Income Tax Act 1961 will prevail;
4. In the case where the provisions of section 194 LA, i.e., TDS on the Payment of Compensation on the Acquisition of Certain Immovable Property, is applicable, then, in that case, the provisions of section 194 LA will not apply;
5. The value of the property in question must be at least Rs 50 lakhs;
6. The provisions of TDS will apply to the consideration paid by the buyer for buying the property;
7. TDS will be applicable at the rate of 1 percent of the total consideration;
8. Only the buyer has the right to deduct TDS on the purchase of an immovable property. That means the seller does not have any authority to deduct TDS;
9. TAN or Tax Deduction Account Number is not needed for deducting TDS on Sale of Immovable Property;
10. Buyer can use his/her PAN or Permanent Account Number for deducting TDS from the sale consideration;
11. Buyer needs to submit the TDS deducted to the Government;
12. In case the payment of the property purchase is made in instalments, then, in that case, the TDS levied will be deducted on each instalment paid;
13. Usually, the PAN of the seller is required as well for deducting TDS, however, in case the seller is not having PAN, then, in that case, TDS charged will be at 20%;
14. Buyer can deduct TDS either at the time of making the actual payment or at the time of credit, whichever is earlier;

Calculation of TDS on Sale of Immovable Property

Suppose A buys a property worth Rs 48 lakhs from Mr. Raj on 25.09.2019. Further, A has paid Rs 2 lakhs as a fee for annual membership of club of the residential complex, Rs 1 lakh as water charge, and Rs 1.5 lakh as the parking fee.

Case Scenario	Explanation	TDS deductible
Case 1	Since the property is bought after 01.09.2019, the fees payable for buying the said property will be added to the total property value to reach at the sale consideration. Therefore, the consideration would become: Rs 48 lakhs + Rs 2 lakhs + Rs 1 lakh + Rs 1.5 lakhs = Rs 52.5 lakhs	1 percent on Rs 52.5 lakhs = RS 52500
Case 2	If the PAN (Permanent Account Number) card of the seller is not accessible, then, in that case, TDS would be deducted at 20 percent	20 percent of Rs 52.5 lakhs = Rs 10.5 lakhs

Procedure For Filing TDS on Sale of Immovable Property

The steps involved in the process for filing TDS on Sale of Immovable Property are as follows:

Fill in Form 26QB

The step involved in filing the form 26QB are as follows:

1. Login to the official portal of NSDL^[1];
2. Now click on the second option from the menu bar “Services”;
3. After that, choose “TDS on Sale of Property”;
4. Now, select the applicable challan Form 26 QB for the payment of TDS on sale of property;
5. In the next step, the applicant needs to fill in the asked details, such as Tax Applicable, Financial Year, Status of the Seller/ Payee/ Transferor, other details, and the amount of tax paid;
6. Now, click on the option “Proceed”;
7. Thereafter, it is advised that the applicant must check the details filed;
8. In the next step, an acknowledgment number will be displayed on the screen, together with two options, i.e., “Print form 26 QB” and “Submit to Bank”;
9. The applicant requires to choose the option “Print Form 26 QB” to take the print out of the form;
10. After that, select the option “Submit to Bank” for making online fee payment by way of internet banking;
11. If in case the buyer does not wish to deposit the TDS by way of internet banking, he/she may take the print out of Form 26 QB and furnish the same, together with the payment at respective bank branch;
12. Once the applicant has made the payment, a challan counterfoil is displayed, including CIN no. and other payment details. It shall be pertinent to note that this counterfoil acts as the proof of payment;

Fill in Form 16B

The step involved in filing the form 16sB are as follows:

1. Firstly, Log in to the official TRACES portal^[1];
2. Now, register as a taxpayer;
3. In the next step, the applicant needs to select Form 16B for the buyer, located under the download menu;
4. Thereafter, enter the transaction details concerning which form 16B is required;
5. The applicant also requires to provide other details, such as Assessment Year, PAN of the seller, Acknowledgement No, etc.;
6. Now, click on Proceed;
7. Thereafter, it is advised that the applicant must check the details filed and confirm;
8. In the next step, a download request page will be shown on the screen containing the Request number;
9. Now, the applicant needs to click on the option “Requested Downloads” to download the files for which the request has been raised;
10. In this step, the applicant needs to search for the request number, which was generated at the time of raising the request, and choose it;
11. Lastly, click on the option “HTTP Download” to download the file;

Penalty For Non Compliance With TDS Provisions

The penalty for non-compliance with TDS Provisions are as follows:

In case TDS has not been Deducted

If in case the buyer has not deducted the TDS (Tax Deducted at Source) from the sale consideration, then, in that case, the interest will be calculated at 1 percent per month;

In case TDS has not been Remitted

1.5 percent per month for a period, starting from the date on which the TDS is deducted to the actual date of payment;

Conclusion

As per the Finance Act 2013, TDS (Tax Deducted at Source) will be applicable on the transfer of immovable property, in which the consideration of the property surpasses or is equal to Rs 50 Lakhs. Further, for all transactions with effect from 01.06.2013, the buyer of the property needs to deduct TDS @ 1 percent of the total sale consideration. The same will be done at the time of making payment.

In case of any other doubt or dilemma, reach out to Swarit Advisors, our dedicated and inclined experts are always there to cater to all your needs and requirements.