TDS on Purchase of Property and the Way You Can Use It to Your Advantage

What is TDS on purchase of property? It stands for tax deducted at source, at the time of purchasing property. Some people think that only buyers need to pay taxes when they purchase property, but that’s not true - there are certain tax liabilities for the seller as well. For the property seller, capital gains and TDS are two elements they are liable for. 

It’s pretty interesting to know that with the laws put forth by the government right now, the power to deduct the TDS rate on property purchase is with the buyer and not the seller. If the buyer does not discharge this duty, they can be penalised.

Properties That are Covered

According to 194IA of the Income Tax Act, “Any person, being a transferee, responsible for paying a resident transfer any sum by way of consideration, for the 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 the issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 1% of such sum as income-tax thereon.”

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This section states that the buyer needs to deduct 1% on the sale if the TDS on purchase property is above 50 lakhs. The properties covered in this section include residential property, commercial property and land. But this does not include agricultural land. 

Note that the TDS on the purchase of property for NRIs is different because the government deducts capital gains and TDS for the NRIs.

How to Deduct TDS on Property Purchase?

There are two times where the buyer can pay the TDS; one is when he/she is executing the conveyance deed or if he/she is paying an advance before the execution of the conveyance deed. The buyer needs to pay the TDS to the credit of the central government, this needs to be done within 30 days from the end of the month, wherein the tax is also deducted. When filling the forms for the TDS payment on property purchase and the furnishing for other parts, you will need to fill out form no.26QB, a form-cum-challan. If there is more than one buyer or seller, you need to fill out no.26QB with all the details necessary. 

Details Required for the Payment of the TDS

Every person responsible for deducting TDS is needed to obtain a Tax deduction account number (TAN). But for TDS on a property purchase of immovable property, the buyer does not require a TAN. When filling the form, you will need to submit the names, addresses, PAN, phone number and email id of both the buyer and the seller. You will need to submit the complete address of the property, the date of the agreement, the date of the payment, and the total value of consideration. You can make the payment online via net banking or physically at the bank.

Who is required to deduct TDS On the Purchase Of Property?

If the sale consideration is 50 lakhs or more, the buyer must deduct TDS at the rate of 1 per cent; however, as of April 1, 2022, TDS must also be deducted if the property's stamp duty value is 50 lakhs or more. This indicates that TDS must be withheld if the property's stamp duty value or the sale price exceeds 50,000. Except for agricultural land, TDS must be withheld from the sale price of all properties, including those that are residential, commercial, industrial, flat, building, or vacant plots.

WHEN TDS IS NOT REQUIRED TO BE DEDUCTED

a) If the property's sale consideration or SDV is less than 50 lakhs.

b) If the property under consideration is mainly agricultural. 

c) Section 195 is applicable if the seller is a non-resident in that case.

How and When to Pay TDS on Purchase of Property?

Here is a step-by-step guide on how to pay TDS to purchase property online.

To fill form no. 26QB, 

• Go to the TIN NSDL webpage.
• You will see the option “TDS on sale of property” from there, click on “Online form for furnishing TDS on property”.
• Choose the applicable challan as “TDS on Sale of Property”.
• Fill in all the details. You will need the Pan Card of the seller and buyer, communication details of both parties, property details and the amount paid, and the tax deposit details. 
• Submit the form. 
• Confirm your submission. 
• You will see a number displayed. Save the number for future use. 
• Click on print. 
• Click on submit to the bank and make the necessary payments via net banking. 
• Then you will see a challan; it is proof of the payment made.

And that is how you complete the TDS payment online for property purchase.

Lower Deduction of TDS on Purchase of Property 

According to some provisions, the seller can approach the income tax officer for a certificate so that the buyer can deduct tax at a lower or nill rate. If not this, the seller can also furnish a declaration for nill TDS. There is no TDS on property purchase for immovable property; the buyer will need to deduct tax for a TDS on property purchase above 50 lakhs.

TDS on Property Purchase that is above 50 Lakhs

According to the Union Budget of 2021, a new section, i.e. 194Q, was introduced to levy TDS of 0.1% on a property purchase of more than 50 lakhs in a year. According to this, the responsibility of the deduction will lie only with the person whose turnover is more than 10 crores. 

With this, the TDS payment on the property purchase needs to be deducted by the buyer on the entire amount.

TDS on Purchase of Immovable Property

This applies to everyone who is buying property from a resident Indian. This applies to the TDS on flat purchase, TDS on land purchase and buildings and land along with facilities and flats.

The only exception here is agricultural land. The seller has been an Indian resident. The buyer must give the seller a TDS certificate 15 days before the due date to deposit the tax sheet.

TDS on Property Purchase from NRI

When an NRI sells a property, the buyer can deduct the TDS on the property purchase from NRI at 20%. If the property was sold two years from the date of the purchase, the TDS on the purchase of the property could be increased to 30%. Long-term capital gains are taxed at 20%, and short-term gains are taxed at the applicable income tax slab rates for NRIs based on the total income tax for NRIs in India. 

Key Things to Remember about TDS 

• The buyer must deduct and pay the government for TDS on property purchases above 50 lakhs.
• The power and responsibility of deducting the TDS are with the buyer, not the seller. 
• If the buyer does not discharge this duty, they can be penalised by the authorities.
• The buyer needs to fill out form no.26QB to credit the TDS.
• If there are more than one buyer and seller, multiple forms need to be filled by each party.

If you’re a buyer or seller thinking about the property, you may be interested in and are confused about the TDS on purchase of property, that’s alright. We at NoBroker will help throughout the process with our experts who have years of experience. To know more, click on the link below. 

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