TDS on Property – Section 194IA of Income Tax Act, 1961

Property Tax, also known as House Tax, is the tax levied on real estate owners by the authorities such as a municipality or municipal corporation. It is used for maintenance and running of the local public amenities of the area, such as roads, sewage system, parks, lighting, and other infrastructure services.

It is levied usually on all real estate properties, including buildings whether residential or commercial, attached land, and improvements made to the property, but not on vacant plots of land with no adjoining building.

These taxes usually calculated on the value of the property owned as well as the land.

The different property divisions include:

1. Land – in its most secure form, without any construction or upgrading.

2. Improvements made to land - this includes immovable manmade creations like buildings and go downs.

3. Personal property – This includes movable manmade objects like cranes, cars, or buses.

4. Intangible property

Section 194IA of the Income Tax Act. 1961 specifies the rules regarding TDS deduction on sale of immovable property. Below are some key pointers to consider:

• Section 194IA specifies that TDS on property must be deducted if the value of the immovable property sold exceeds ₹50 lakh.
• TDS on property, as the name implies, is a tax deducted at the source on the income received by the seller of a property.
• The buyer of immovable property that costs more than ₹50 lakhs is required to deduct TDS on property before paying the seller.
• The rate of TDS on property u/s Section 194IA is 1% of the sale price of the property.
• The amount deducted as TDS by the buyer has to be directly deposited with tax authorities along with key details of the seller such as Name, Address and PAN.
• Section 194IA further specifies that the seller is eligible to claim the deducted TDS on property at the time of filing returns.

Below are some of the key requirements that need to be met in order to be eligible for TDS on Property deduction under Section 194IA:

1) TDS on property is to be deducted by the buyer and not the seller.

2) There are no TDS applicable under Section 194IA if the transaction is worth less than Rs.50 lakh.

3) TDS on property must be paid on the full amount of sale and not only the sum above Rs.50 lakh. For instance, if you buy a property with a value Rs.70 lakhs, TDS will be calculated on Rs.70 lakh and not Rs.20 lakh.

4) For payment made in instalments, TDS will be deducted on each instalment.

5) Since September 2019, payments such as club membership, car parking, advance fees, maintenance fees, electricity fees have also been comprised under 'consideration for immovable property'. It implies that such charges attached to the property will also be included in the taxable total.

6) PAN cards of both buyer and seller are mandatory for TDS on property deduction under Section 194IA.

7) If the buyer does not obtain the seller's PAN, the rate of TDS rises to 20%.

8) The TDS on the immovable property must be paid using Form 26QB in 30 days from the end of the month when the TDS was deducted.

9) The buyer is required to obtain Form 16B and issues the form to the seller.

a)To keep a check on the extensive use of black money in immovable property transactions, the government of India has introduced a law, where the purchaser of a property has to deduct tax at source, i.e. TDS on property while paying the seller for his property.

b)Under Section 194IA of Income Tax Act, a buyer is required to deduct TDS at the rate of 1% of the sale consideration. This is applicable if the value of the payment is Rs.50 lakh or more.

c) The Section covers residential property, commercial property, as well as land. You must note that transactions relating to the purchase of agricultural land are not covered under this provision.

Now the question arises when to deduct the TDS on property purchase? The purchaser is required to deduct TDS on property at the time of crediting the amount to seller’s account or time of payment, whichever is earlier.

a) From 1 June 2013, when a buyer buys immovable property (i.e. a building or part of a building or any land except agricultural land) costing more than Rs.50 lakh, he must deduct tax at source (TDS) when he pays the seller.

b) This has been laid out in Section 194IA of the Income Tax Act.

c) The buyer obtains Form 16B and issues the form to the seller.

The property seller has to do the following:

1) Provide PAN to the buyer who in turn will fill-up the form online and submit to the Income Tax Department for TDS.

2) Verify that the property buyer has deposited the taxes deducted from sale consideration and should be reflecting in the Form 26AS Annual Tax Statement.

3) Get the Form16B for paying the TDS.

Form 26QB is a challan cum statement that need to be submitted to tax authorities by the buyer of an immovable property under provisions of Section 194 IA. This form can currently be accessed by logging into the Income Tax e-Filing portal.

Some key considerations regarding submission of Form 26 QB include:

• Submission of Form 26QB and TDS on property payment must be made within 30 days of purchase of the property
• Payment of TDS on property using Form 26QB can be made using both online and offline methods.
• Acceptable online payment methods for TDS on property payments include Net banking, debit card, RTGS/NEFT, etc
• In order to pay TDS on property offline using Form 26QB can be paid at counters of designated Indian banks.

After successful payment of TDS using Form 26QB, the details of the payment can be double checked by the buyer in Form 16B. Details of TDS on property payments typically get updated in Form 16B within 5 days of the TDS payment. A copy of the downloaded Form 16B should be shared with the seller as proof of TDS payment for the property sale.

 Step 1: Log into your e-filing account. Navigate to the “e-Pay Tax” link and then click on “New Payment”

Section 194-IA is applicable only in cases where an eligible property is sold. There is a related Section 194IB, which is applicable in case of rental properties. This is because, rental income is considered as income for the landlord, so is subject to income tax, if it exceeds a specific limit.

As per provisions of Section 194-IB, TDS on rent is applicable if monthly rent exceeds ₹50,000. The TDS on property rent has to be deducted by the renter whether an individual or HUF and deposited directly with the tax authorities.

The rate of TDS on property as per current Income Tax rules is 5% of the monthly rent payable. The rent remaining after deduction of TDS is to be paid to the landlord as due rent. The renter should also provide proof of TDS on property rent deposited with the tax authorities to the landlord at specific intervals.

TDS on property payments can be done using the Form 26 QB. In order to make the TDS payment using this challan cum statement, the below data needs to be provided by the buyer:

• Residential Status of seller
• PAN of the seller & buyer
• Communication details of seller & buyer
• Property details
• Amount paid/credited & tax details

It must be kept in mind that Form 26QB needs to be filled out by the buyer of the property. This is because the TDS on property payment is paid directly to the tax authorities by the buyer of the property.

a) The tax amount deductible must be paid to the government within seven days of any such transaction made.

b) The penalty of not paying TDS on property can go up to Rs. 1 lakh under Section 271H.

c) To avoid any type of penalty, you must pay the TDS on property along with interest amount and any late payment fee as and when you receive a tax notice.

d) Under Section 201, you will have to pay an interest of 1% per month if the tax was not deducted at all.

e) 1.5% interest will have to be paid if the tax was deducted but not deposited with the government.

f) In case of default on account of non/late filing of Form 26QB, a fee shall be levied u/s 234E of the Act.

g) The late filing fee applicable under Section 234E is Rs. 200 per day dependent on the maximum tax due.

h) If the property seller has already paid capital gains tax, the late filing fee could be reduced or cut off altogether.

However, to avoid getting into such penalties, it is advisable to stay on track and pay all taxes on time.

While TDS on property u/s 194IA is applicable in the case of most property transactions, there are some key exceptions to consider. These include:

• Sale of Agricultural Land

  If the immovable property being transferred is designated as agricultural land, Section 194-IA is not applicable. So, TDS on property is not applicable in immovable property transactions that involve agricultural land as it is not classified as a capital asset as per current provisions of the Income Tax Act. This exception specified under Section 194-IA is applicable irrespective of the value of the agricultural land being sold.

• Sale of Property Less than 50 Lakh

  If an immovable property transaction is valued at less than ₹50 lakh, Section 194IA is not applicable. This is because as per current rules the TDS on property u/s 194-IA is applicable only for transactions exceeding ₹50 lakh. So, in this case the buyer is not required to deduct TDS on property or deposit it with the tax authorities

• Sale of Property to Government

  If an immovable property is purchased by the Government for development purposes, Section 194-IA is not applicable. Such acquisitions are made for various purposes such as building of metro rail, highways, expressways, etc. and are termed as compulsory acquisition. TDS on property in such cases is applicable as per provisions of Section 194-LA which features slightly different rules.