TDS on Sale of Property - Section 194IA

Understanding TDS on Sale of Immovable Property Under Section 194-IA

Section 194-IA of the Income Tax Act, 1961, implemented on June 1, 2013, introduces a tax obligation concerning the sale of immovable property. In essence, it mandates the buyer to deduct tax at source (TDS) before making the payment to the seller for certain high-value property transactions. This provision of TDS on sale of property aims to bring such transactions into the tax net, enhance transparency, and ensure tax is collected at the point of sale.

Let us break down the core components of TDS on sale of property:

• Who is responsible? The primary responsibility for deducting and depositing this TDS lies with the buyer of the immovable property.
• When does it apply? This section is applied if the sale consideration of the immovable property is ₹50 lakhs or more.
• What is the rate? The TDS rate is 1% of the total sale consideration.
• What kind of property? It applies to the transfer of any immovable property, which includes land (other than agricultural land), buildings, or any part of a building.
• Simplicity for the Buyer: Importantly, the buyer (deductor) is not required to obtain a Tax Deduction and Collection Account Number (TAN) for this purpose; their PAN is sufficient for compliance.

Understanding this section is important for both buyers and sellers to ensure legal compliance and avoid potential penalties. It simplifies the tax collection process for the government while ensuring a portion of the tax due from the seller on capital gains is collected in advance.

When is TDS for Property Purchase Required?

The requirement to deduct Tax at Source (TDS) under Section 194-IA during a property purchase becomes mandatory due to specific conditions. As a buyer, you need to be aware of these conditions to ensure timely compliance:

• TDS becomes mandatory if the sale consideration for the immovable property is ₹50 lakhs or more.
• The provision applies to the transfer of any immovable property. This generally includes land, buildings, and apartments.
• Section 194-IA primarily applies when the seller is a resident of India.

Requirements of Section 194IA

To ensure full compliance with Section 194IA TDS when purchasing immovable property, buyers must adhere to several key requirements. These include:

• The primary responsibility rests with the buyer to deduct Tax at Source (TDS) if the transaction value of the immovable property equals or exceeds ₹50 lakhs.
• The 1% TDS is calculated on the total agreed sale consideration, not merely the amount exceeding the ₹50 lakh threshold. For instance, if a property is purchased for ₹60 lakhs, TDS is due on the full ₹60 lakhs (i.e., ₹60,000). This applies irrespective of the number of buyers or sellers involved.
• If the payment is structured in installments, TDS must be deducted from each installment at the time of its payment to the seller.
• The deduction must occur at the time of crediting the amount to the seller’s account or at the time of actual payment, whichever occurs first.
• The buyer must obtain the seller’s PAN to correctly deposit the TDS. If the seller fails to provide their PAN, or provides an invalid PAN, the TDS rate escalates significantly to 20%.

What is Form 26QB?

Form 26QB is a critical document in the process of Tax Deducted at Source (TDS) on the sale of immovable property under Section 194-IA. It is the official record and payment challan for this specific tax obligation:

• The buyer is required to file Form 26QB and deposit the corresponding TDS amount within 30 days from the end of the month in which the tax was deducted. For example, if TDS is deducted in June, Form 26QB must be filed and payment made by July 30th.
• Successful filing and payment via Form 26QB is a prerequisite for the buyer to download Form 16B.
• Once Form 26QB is processed and TDS is reflected, the buyer can access Form 16B (the TDS certificate) from the TRACES portal. The buyer is then obligated to provide this Form 16B to the seller, usually available within 10-15 days of TDS deposit, as proof of tax deduction and payment on their behalf.
• Accurate PAN details of both the buyer and the seller are non-negotiable for filing Form 26QB. Incorrect or missing PANs can lead to complications, including higher TDS rates or issues with credit for the seller. The information regarding sale of immovable property and the payment of TDS can be found on tin-nsdl.com (http://www.tin-nsdl.com/).

Penalty for Non-filing Form 26QB

Failure to comply with the requirement of filing Form 26QB and depositing the associated TDS can attract several financial repercussions for the buyer. It is important to understand these potential penalties to ensure timely adherence:

• A fee of ₹200 per day is levied for each day the filing of Form 26QB is delayed beyond the stipulated due date.
• However, the total fee cannot exceed the actual TDS amount due.
• If the buyer fails to deduct the TDS at all, interest at the rate of 1% per month will be charged.
• If TDS is deducted by the buyer but not deposited with the government within the prescribed timeline, interest at the rate of 1.5% per month (or part of a month) is applicable.
• Beyond fees and interest, a specific penalty can be imposed for not filing Form 26QB or for furnishing incorrect information within it. This penalty can range from a minimum of ₹10,000 to a maximum of ₹1,00,000, at the discretion of the Assessing Officer.

Consequences of Non-filing of Form 26QB to the Seller

The buyer’s failure to file Form 26QB has direct adverse implications for the seller. Primarily, the seller will be unable to claim credit for the TDS deducted when filing their own Income Tax Return, as the amount will not appear in their Form 26AS (Annual Tax Statement).

Consequently, when calculating their tax liability, especially on capital gains arising from the property sale, the seller would not be able to offset this TDS. This effectively means they might bear the tax burden again on that portion of income, as the legitimate credit for tax already deducted on their behalf remains inaccessible.

How to Pay TDS on Property Purchase through Challan 26QB and Get Form 16B

Fulfilling your TDS obligation on a property purchase involves an online payment process using Form 26QB, followed by obtaining Form 16B (the TDS certificate) for the seller. Here is a detailed walkthrough:

Step 1: Access the e-Filing Portal

Log in to your account on the official Income Tax e-filing portal (www.incometax.gov.in) and navigate to the menu: Select “e-File,” then from the dropdown, click on “e-Pay Tax.”

Step 2: Initiate a New Payment

On the e-Pay Tax page, click on the button labeled “+ New Payment.”

Step 3: Select Form 26QB

You will see various tax payment options. Locate the tab for “26QB-TDS on Property” and click the “Proceed” button as shown below:

Step 4 Add Buyer’s Details

Your personal details (as the buyer) may be auto-populated. Review them and make any necessary corrections or updates. Once confirmed, click “Continue.”

Step 5 Add Seller’s Details

Carefully enter all required details of the seller, including their PAN (Permanent Account Number) and full address. Ensure accuracy to facilitate correct TDS credit.

Step 6 Add Property Details

Provide comprehensive details about the immovable property, such as its type and complete address. The system will typically auto-calculate the 1% TDS amount based on this value. After verifying all property and sale details, click “Continue.”

Step 7 Add Payment Details

Choose your preferred mode of online payment (e.g., Net Banking, Debit Card). Upon successful payment, a challan will be generated.

Step 8 Register in TRACES

If you have not used TRACES (TDS Reconciliation Analysis and Correction Enabling System (www.tdscpc.gov.in) before, you will need to register as a “Tax Payer.”

• Once registered and the payment is processed (usually takes a few days), you can issue the approved Form 16B (TDS certificate) to the Seller.
• Check your Form 26AS; your TDS payment will be reflected under “Details of Tax Deducted at Source on Sale of Immovable Property under Section 194IA [For Buyer of Property].”
• Part F of Form 26AS will show details like the TRACES-generated TDS certificate number, seller’s name and PAN, transaction date and amount, the Form 26QB acknowledgement number, date of deposit, and the TDS amount.

Step 9 Download your Form 16B

• Access your TRACES account and go to the “Downloads” tab in the main menu. From the dropdown options, click on “Form-16B (for buyer).”
• To retrieve the specific Form 16B, you will need to input the Seller’s PAN and the Acknowledgement Number related to the property transaction. Click “Proceed.”
• Carefully review the details displayed on the screen to ensure they are correct. Then, click “Submit Request.”
• Your request to download Form 16B will be processed. This might take a few hours.
• If the status of your Form 16B download request shows as “Available,” you can proceed to download. If it still says “Submitted,” please wait a bit longer and check again.
• The download will be a “.zip” file. The password to open this .zip file is your (the buyer/deductor’s) date of birth in DDMMYYYY format. Inside the .zip file, you will find Form 16B as a PDF document. Print this form and provide it to the seller.

Notice for Non-filing Form 26QB

The Income Tax Department stays informed about property transactions through Annual Information Returns (AIRs) regularly submitted by registrar and sub-registrar offices. This system allows the department to effectively track property sales and purchases, particularly those where the transaction value exceeds ₹50 lakh.

If the information received through AIR indicates that a buyer has undertaken such a high-value transaction but has either failed to deduct the requisite 1% Tax at Source (TDS) or has not filed the TDS statement (Form 26QB) within the prescribed timelines, the Income Tax Department is likely to initiate action. This usually involves issuing a formal notice to the buyer, seeking an explanation and compliance regarding the TDS/tax deducted at source obligations.

Sample Notice Received by the Taxpayer

Sub: CPC (TDS)
Follow-up: 26QB Statement not yet filed for Purchase of Property during FY 2013-14
Date of communication: 05/04/2016
Dear Buyer of Immovable Property,
PAN(XXXXX1234X),

According to information provided to the Income Tax Department via the Annual Information Return (AIR) from the Registrar/Sub-registrar’s office, you completed an immovable property purchase exceeding ₹50 Lakhs in value during Financial Year 2023-24. We note, however, that the obligatory TDS Statement in Form 26QB associated with this transaction does not appear to have been filed. It is imperative that you address this promptly by filing Form 26QB and ensuring the TDS Certificate (Form 16B, available via TRACES) is issued.

Frequently Asked Questions on TDS on Sale of Property.