Understanding TDS on Purchase of Immovable Property: Section 194IA of Income Tax Act, 1961

What is TDS?

Tax Deduction at Source (TDS) involves deducting tax from income at the time it is paid to another party. When individuals purchase property, they must deduct TDS before making payments to the seller and file TDS returns quarterly. This article will focus on TDS for property purchases, especially for salaried individuals or those without a valid TAN.

What is TAN in Income Tax?

TAN stands for Tax Deduction and Collection Account Number. It is a unique 10-digit alphanumeric number issued by the Income Tax Department for collecting and deducting taxes. It is mandatory for all persons responsible for tax deduction or collection to obtain a TAN. However, Section 194IA of the Income Tax Act provides an exception in certain cases.

What is TDS Section 194IA of The IT Act?

Section 194IA deals with the transfer of immovable property, excluding rural agricultural land, by any buyer. This section applies to residential properties, commercial properties, and land. The buyer must deduct TDS on the payment to the seller and deposit it to the government. The seller can claim this TDS when filing their Income Tax Returns (ITR).

Key Features of Section 194IA

• Applicability: If the property value exceeds Rs. 50 lakhs, the buyer must deduct TDS while making the payment.
• TDS Rate: The TDS rate is 1% of the property's sale consideration or stamp duty value (SDV), whichever is higher.
• Inclusions: The consideration amount includes club membership fees, car parking fees, electricity and water facility fees, maintenance fees, advance fees, or any fees related to the property transfer.

Requirements of Section 194IA

The buyer must pay TDS on the full amount of the higher of the sale consideration or SDV. This is not limited to the amount exceeding Rs. 50 lakhs. Incorrect TDS deduction can lead to penalties.

How to Pay TDS?

TDS on immovable property must be paid using Form 26QB within 30 days from the end of the month in which the TDS was deducted. The buyer can obtain Form 16B from the seller as proof of payment.

Steps to Pay TDS:

1. Access the Income Tax Website: Log in and fill out Form 26QB with details of the property, buyer, and seller.
2. Submit Form 26QB: Submit the form and make the TDS payment online.
3. Obtain Form 16B: After payment confirmation, download Form 16B and provide it to the seller.

When to Deduct the TDS?

TDS must be deducted either at the time of crediting the amount to the seller's account or at the time of payment, whichever comes first. This ensures that the tax is collected efficiently and in a timely manner.

How to Claim TDS on Sale of Property?

The seller needs to provide their PAN number to the buyer, who fills Form 26QB and submits it to the Income Tax Department. The seller should verify that the TDS amount appears in their Form 26AS, which is an Annual Tax Statement. The seller can also obtain Form 16B from the buyer as proof of TDS payment.

Penalties for Non-Filing of TDS

Failing to pay TDS on property can result in penalties up to Rs. 1 lakh under Section 271H. To avoid penalties, buyers must pay the TDS along with any applicable interest and late payment fees upon receiving a tax notice. An interest of 1% per month is charged for not deducting the tax, and 1.5% if the tax was deducted but not deposited. Additionally, late filing of Form 26QB incurs a fee of Rs. 200 per day until the return is filed.

Conclusion

Understanding and complying with TDS provisions under Section 194IA is crucial for property buyers. As a Chartered Accountant, it's my duty to educate clients about these requirements to ensure timely deductions and accurate payments, thereby avoiding hefty penalties. Proper compliance not only ensures financial integrity but also smooth property transactions.