TDS On Sale Of Property

Whenever you invest in any sale or instead purchase of property, it is best to know Tds On Sale Of Property to ensure that the deal goes through without any hitches. The property buyer is required to deduct TDS from the property’s price and pay it on the income tax portal. Failure to do so could cause several issues that are better prevented than dealt with.

Here, we will discuss taxation in property sales to help you streamline your property sale or purchase.

What is TDS?

TDS, or Tax Deducted at Source, is an income tax component paid by all taxpayers, regardless of the income tax bracket. It is paid by the individual or organisation who receives compensation in exchange for a service; it could be a salary, professional fees, interest, or commission.

The person receiving the income is obligated to pay the income tax via the standard income tax collection process. However, the government recovers the TDS On Sale Of Property from the party making the payment in this case. The government checks that your income tax is deducted from payments in advance at the source provisions. It can range from 0.5% to 10% of total income (dependent upon the type and tax bracket). The TDS will then be added as a liability when you pay your income tax and will be shown when calculating your final tax liability.

TDS is required to be deducted at the time of payment by anyone making specified payments, as defined in the Income Tax Act. On the other hand, TDS is not required to be deducted if the payer is an individual or a HUF whose books are not required to be audited.

Individuals and HUFs are required to deduct TDS On Sale Of Property at a rate of 5% on rent payments over Rs. 50,000 per month, even if they are not subject to a tax audit. Individuals and HUFs, who are required to deduct TDS at a rate of 5%, are exempted from applying for TAN. Your employer deducts TDS at the applicable income tax slab rates. Banks deduct TDS at a rate of 10%. If they do not have your PAN, they may deduct it at a 20% rate.

Let’s study an example to understand this concept better:

Orion Pvt Ltd pays the property’s owner Rs. 8,00,000 per month in office rent. TDS is required to be deducted at a 10% rate. Orion Pvt Ltd must deduct Rs 80,000 for TDS On Property Sale and pay the remaining Rs. 7,20,000 to the property owner. After deducting tax at the source, the income recipient, which is the property owner, receives a net amount of Rs. 7,20,000. He will add Rs. 8,00,000 to his income and deduct the amount already deducted by Orion Pvt Ltd, i.e. Rs 80,000, from his final tax liability.

As seen in this example, dealing with all of this taxation without proper financial accounting is complex. However, you can take the help of OkCredit, a financial accounting service, which will focus on your growth as a business agent while handling all your monetary woes.

Requirements Under Section 194IA

When a buyer purchases immovable property (i.e. a building or part of a building or any land other than agricultural land) for more than Rs 50 lakhs, he must deduct TDS when he pays the seller as of 1 June 2013. This is outlined in Section 194-IA of the Income Tax Act.

Here are its requirements:

• The buyer must deduct TDS at the rate of 1% of the total sale consideration. TDS must be deducted by the buyer, not the seller, in this case.
• If the sale price is less than Rs 50 lakhs, TDS is not required to be deducted.
• TDS must be deducted on each instalment if the payment is made in instalments.
• All comparable charges, such as a club membership fee, a parking fee, electricity or water facility fee, a maintenance fee, an advance fee, or any other charges incidental to the transfer of immovable property, will be considered for consideration immovable property. Budget 2019 states that this applies to immovable property purchased on or after 1 September 2019.
• TDS is applied to the total purchase price. For example, If you paid Rs. 55 lakh for a house, you must pay TDS on Rs. 55 lakh than Rs. 5 lakh (i.e. Rs 55 lakh – Rs 50 lakh). Even if there are multiple buyers or sellers, this remains true. On 1 September 2019, if you paid Rs. 2 lakh for parking, Rs. 1 lakh for the water facility fee, and Rs. 1 lakh for electricity fee, your sale consideration would be Rs. 59 lakh (55+2+1+1). TDS of 1% will be levied on the sum of Rs. 59 lakh. TDS would be payable to the amount of Rs. 59,000. The rate is 0.75% if the transaction gets completed between 14 May 2020 and 31 March 2021.
• To pay the TDS on immovable property, the buyer does not need to obtain a TAN (Tax Deduction Account Number). You can make the payment with your PAN.
• TDS on immovable property is payable by the buyer, who must obtain the seller’s PAN. Otherwise, a TDS of 20% is deducted. The PAN of the buyer is also required.
• TDS is deducted at the time of payment (including instalment payments) or when the seller is granted credit – whichever comes first.
• TDS on real estate must be paid within 30 days of the end of the month in which it was deducted using Form 26QB.
• After submitting TDS to the government, the buyer must provide the seller with the TDS certificate in form 16B. This is usually available within 10-15 days of the TDS being deposited. Form 16B must be obtained and issued to the seller by the buyer.

Conclusion

Each buyer must complete a Form 26QB challan for each unique buyer-seller combination for their respective share. The seller and the buyer must remain vigilant of the ever-changing taxation policies regarding Tds On Sale Of Property.

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FAQs

Q. What is the average TDS rate for property sales?

Ans. The purchaser will deduct 1% TDS off the price of the property.

Q. When should we pay Tds On Sale Of Property?

Ans. One must pay the TDS on immovable property transfers within 30 days of the end of the month in which the deduction is made.

Q. What can happen if TDS is not deducted from the property?

Ans. Section 201 requires you to pay 1% monthly interest if no tax was deducted and 1.5% monthly interest if tax was deducted but not paid to the government.