May 2812 min read

Section 194IA: How to File TDS on Sale of Property?

Updated: Nov 11

Buying or selling property is a significant financial transaction, and with it comes important tax obligations. Under Section 194IA of the Income Tax Act, if you are purchasing an immovable property (other than agricultural land) worth more than Rs. 50 lakhs, you are required to deduct Tax Deducted at Source (TDS) on the transaction. This TDS deduction ensures that tax is collected at the source before the seller receives the full payment.

In this article, we will walk you through everything you need to know about Section 194IA, including when and how to deduct TDS, how to file the TDS in Form 26QB, and the issuance of Form 16B to the seller.

What is Section 194IA?

Section 194IA covers various aspects of real estate transactions:

TDS on Property: This is a tax that is deducted from the income of a person and remitted to the Department of Income Tax.

Process of Deduction: Under Section 194IA, TDS on property is deducted by the purchaser of the property, while under Section 194IB, it is deducted by the rent payer.

Claiming TDS: You can claim this TDS on property while filing your income tax returns.

Provisions for TDS on the Sale of Property

The Act's Section 194-IA allows for the tax to be deducted from the transfer price of some immovable property, excluding agricultural land.

The aforementioned section's subsection (1) allows anyone who is in charge of paying a resident any amount as payment in exchange for the transfer of any immovable property (apart from agricultural land) to deduct tax at the rate of 1% of the amount as income tax at the time of credit or payment of the amount to the resident. The tax is to be deducted by the buyer (not the seller).

The Memorandum to the Budget 2022 says that sub-section (2) stipulates that no tax deduction shall be provided in cases where the consideration for the transfer of an immovable property is less than Rs 50 lakh. "Consideration for immovable" property refers to all fees associated with the transfer of the immovable property, such as those related to club membership, parking, maintenance, energy or water facilities, and advance payments. Immovable property acquired on or after September 1, 2019, is subject to this.

TDS is to be withheld from the consideration that the transferee has paid to the transferor in accordance with the terms of the aforementioned clause. The stamp duty value of the immovable property is not considered in this section.

TDS must be applied to the whole purchase price. It should be withheld from each installment paid if the payment is made in installments. TDS is withheld from payments made to the seller at the time of payment, including installment payments.

To deposit TDS with the government, the buyer of the property is not required to obtain a TAN (Tax Deduction Account Number). Your PAN can be used to make the payment. The buyer must have the seller's PAN in order to deposit TDS; otherwise, 20% of TDS will be deducted.

Form 26QB must be used to pay the TDS on the immovable property within 30 days of the end of the month in which the TDS was deducted.

The buyer must give the seller the TDS certificate in form 16B after depositing the TDS with the government. Approximately 10 to 15 days after the TDS is deposited, this is available. Form 16B must be obtained by the buyer, who must then give it to the seller.

A change to the percentage on which TDS is to be withheld is being proposed. When purchasing real estate, the buyer is required to subtract 1% of the total amount paid or credited, or the stamp duty value of the property, whichever is larger.

Steps to File TDS on Sale of Property (Form 26QB)

The following are the procedures to get Form 16B (for the seller) and pay TDS through Challan 26QB:

Step 1: Open the Income Tax e-filing portal and log in to your account. Choose e-File > Click e-Pay Tax in the dropdown menu as displayed below.

Step 2: Select "+ New Payment."

Step 3: As indicated below, select the "26QB- TDS on Property" tab and click the "Proceed" button.

Step 4: Add buyer's details. Your information will all be automatically filled in, but you can edit it if necessary. Click "Continue" after entering the information.

Step 5: Add the seller's details. Include all the seller's information, including their address and PAN.

Step 6: Add property details. Include all the property information, such as kind and address, as well as the selling information, such as agreement date and value. An automatic calculation will be made of the tax amount. After finishing, select "Continue."

Step 7: Add payment details. Choose your preferred payment method and carry out the transaction. A challan will be generated after the payment has been completed.

Step 8: Register with TRACES

If this is your first time using TRACES, register as a taxpayer by providing your PAN and the tax payment Challan details.
Following registration, you can get an authorised Form 16B (TDS certificate), which you can give to the seller.
Examine your Form 26AS within seven days following payment. Your payment is shown under "Details of Tax Deducted at Source on Sale of Immovable Property u/s 194(IA) [For Buyer of Property]," as you will be able to see.
Part F provides information on the deductee, including name and PAN, transaction date and amount, TDS deposited, acknowledgement number (which is the same as the one on your Form 26QB), date of deposit, and TDS certificate number, which TRACES generates.

Step 9: Download Form 16B

Sign in to TRACES once your payment on Form 26AS has been recorded. Navigate to the "Download" page and select "Form-16B (for the buyer)".
After double-checking every detail, select "Submit a request."
Your request will be handled in a few hours. Choose Requested Downloads from the drop-down menu by clicking on the Downloads tab.
It should be evident to you that your request to download Form 16B is in the "available" stage.
Wait a few more hours if the status indicates "submitted" before completing the last step again.
Download the ".zip file" from here. The deductor's birthdate (in the format DDMMYYYY) is the password to unlock the ".zip file." You can find your form as a PDF inside the.zip file. Take a print of this PDF.

Mandatory Filing of Form 26QB

TDS is imposed on the transfer of immovable property when the consideration for the property exceeds or equals Rs 50 lakhs, as per the Finance Act of 2013. In accordance with Rules 30, 31 & 31A of the Income Tax Rules and Section 194 IA of the Income Tax Act, 1961, it is stated that:

When paying the sale consideration, the buyer of the property should deduct tax at the rate of 1% for all such transactions starting on June 1, 2013.

Any amount deducted under section 194-IA must be paid to the credit of the Central Government within seven days of the end of the month in which it is made.

The tax so deducted must be deposited to the Government Account through the e-tax Payment option (Netbanking) or any of the authorised bank branches.

The PAN of both the buyer and the seller must be provided on an online form (Form 26QB) in order to provide information about the real estate transaction. Visit the www.tin-nsdl.com website (http://www.tin-nsdl.com/) to provide information about the sale of immovable property and the payment of transfer duty (TDS).

For the taxes deducted and put into the government account, the buyer of the property must provide the seller with a TDS certificate in Form 16B.

By registering on the Centralised Processing Cell (TDS) website, www.tdscpc.gov.in (http://www.tdscpc.gov.in/), Form 16B will be downloadable.

Notice for Non-Filing of Form 26QB

Every year, the registrar/sub-registrar office sends an Annual Information Return (AIR) to the income tax department about real estate purchases and sales. The department can determine whether you have transacted more than Rs. 50 lakh in real estate based on this data. The IT department will notify the buyer if they have failed to file TDS within the allotted time or to deduct tax at the source at the rate of 1% of the transaction value.

Sample Notice Received by the Taxpayer

Subject: CPC (TDS)

Follow-up: Non-filing of 26QB Statement for Property Purchase in FY 2021-22

Date of Communication: 15/09/2023

Dear Buyer of Immovable Property,

PAN: XXXXX5678X

As per information received through the Annual Information Return (AIR) from the Registrar/Sub-registrar, it has been identified that you completed a transaction involving the purchase of an immovable property valued above Rs. 50 lakhs during the Financial Year 2021-22.

However, our records indicate that the TDS Statement in Form 26QB has not yet been filed. We urge you to take immediate action regarding the filing of the TDS Statement in Form 26QB and issuing TDS Certificates in Form 16B, which can be downloaded from the TRACES portal.

Penalties for Non-Filing of TDS on Sale of Property

After any such transaction, the tax amount deductible has to be paid to the government within seven days. Failing to do so may lead to several dire implications. These include:

Implications for Buyers:

Under Section 234E of the Act, a fee will be assessed in the event of default resulting from the non- or late submission of Form 26QB.
It would be his responsibility to pay a fine of Rs. 200 (two hundred) for each day that this failure persists.
In addition, the buyer would be responsible for any late deductions, payments, and interest. The Assessing Officer may also impose penalties under Section 271H on him.

Implications for Sellers:

The seller will not be eligible to receive the TDS Credit if Form 26QB is not filed or is filed after the deadline.
The tax that has been so withheld must be put into the government account using either an authorised bank branch or the e-tax payment method (Netbanking). Any amount so withheld under section 194-IA must be remitted within seven days of the conclusion of the month in which the deduction is made to the Central Government's credit.

Nonetheless, it is advised to keep on track and pay all taxes on time to prevent incurring such fines.

TDS on Sale of Property by an NRI

When non-resident Indians (NRIs) sell property in India, they are required to pay capital gains tax. The original owner's purchase date must be considered when handling inherited property to classify any capital gains as either long-term or short-term. In this case, the property's value should be determined by taking into account the costs borne by the prior owner. This takes into account the unique circumstances related to inherited properties and guarantees a more accurate computation of capital gains.

TDS must be subtracted from the selling profits by the property buyer and deposited with the income tax authority within the allotted time frame. The buyer must submit Form 27Q with the deduction and payment information after deducting the TDS. The tax rate on long-term capital gains is 20%, whereas the tax rate on short-term gains is determined by the applicable income tax slab rates for non-resident Indians (NRIs) and is dependent on their total taxable income in India.

Conclusion

Understanding the TDS on the sale of property and how they are determined is essential, regardless of whether you are buying or selling a home. This guide will undoubtedly be helpful to you. Let the professionals handle the paperwork if you'd prefer not to have to deal with it when purchasing or selling a home.

FAQ

Q1. What is TDS on the sale of the property?

According to the Finance Bill 2013, any buyer of an immovable property (except rural agricultural land) for ~ 50 lakhs or more would have to deduct TDS at the rate of 1% from the amount that would otherwise be payable to the resident transferor.

Q2. What is TDS on sale of immovable property in India?

When an immovable property is sold, 1% TDS is due in accordance with Section 194-IA of the Income Tax Act. TDS will additionally be withheld when buying, renting, or transferring such property.

Q3. How to pay TDS on the sale of property?

As a buyer, you have thirty days from the end of the month the tax was deducted to submit Form 26QB online and deposit this TDS amount to the government.

Q4. As a buyer, do I require to obtain TAN for a TDS deduction on the sale of property?

It is not necessary for the buyer or purchaser of the property to obtain a Tax Deduction Account Number (TAN). To report the TDS, just the seller's and buyer's PANs are needed.

Q5. What if I do not have the seller's PAN to deduct TDS on the sale of a property?

Obtaining the seller's PAN is required. The seller will not receive credit for the TDS amount if the PAN is not accessible. TDS must be paid at the rate of 20% of the purchase price.

Q6. What is TDS on the sale of property in case of joint sellers?

The income tax tribunal's Delhi Bench decided in 2018 that joint buyers whose individual share is less than Rs 50 lakh will not be required to pay any TDS under Section 194 1A. The tribunal stated that the purchase consideration paid by each transferee would be the deciding factor for the applicability of Section 194-1A, given that each was an individual and the ruling was passed accordingly.

Q7. Is TDS deducted on the entire amount for which a property is bought or the amount exceeding the property value of Rs 50 lakh?

When the amount exceeds Rs 50 lakh, the buyer must pay TDS from the total amount paid or credited to the seller. For instance, if a property is purchased for Rs 70 lakh, TDS must be withheld on the full amount of Rs 70 lakh, not simply on the Rs 20 lakh that is over the Rs 50 lakh level or on the Rs 50 lakh.

Q8. How can a seller claim the TDS refund for the amount deducted on the same of their property?

When completing their income tax return, a seller is eligible to claim the TDS that was deducted from an immovable property. Section 244A of the income tax legislation permits a taxpayer to receive interest payments at a rate of 0.5% per month on the refund owed on a filed ITR. If an ITR is submitted before the deadline, interest is owed from April 1st of the assessment year to the reimbursement date. Interest is due from the time the ITR is furnished until the refund is issued if the return is filed after the deadline.

Q9. What is the time limit to pay TDS on sale of property?

There is a 30-day window in which to pay TDS on a property. TDS on transfers of immovable property must be paid no later than thirty days following the conclusion of the month in which the deduction is made.

Q10. What is TDS on the sale of property by an NRI?

If an NRI sells a property before two years have passed since the date of purchase, 20% TDS will be withheld from the sale price. There would be a 30% TDS requirement.

Q11. How to avoid the TDS on the sale of property by an NRI?

To reduce TDS on a property sale, an NRI must submit an application in Form 13 to the income tax department to receive a certificate indicating a lower or zero TDS deduction. The majority of NRIs select the same certificate since it helps them reduce their TDS liability.

Q12. Is TDS applicable on the sale of rural agricultural land?

No, TDS under Section 194-IA is not applicable on the sale of rural agricultural land. However, it is applicable on the sale of other immovable properties, such as residential or commercial properties.

Q13. Can the buyer pay the TDS in installments if the property purchase is being done through multiple payments?

Yes, TDS can be deducted in installments if the property purchase is made in installments. The buyer should deduct TDS at the time of each payment and file Form 26QB within 30 days from the end of the month in which the deduction was made.

Q14. What happens if the buyer fails to deduct TDS on the purchase of property?

If the buyer fails to deduct TDS, they may be held liable to pay the TDS along with interest and penalties. Interest is charged at 1% per month for non-deduction and 1.5% per month for non-deposit of TDS to the government.

Q15. Can TDS be deducted on the property purchase price including GST?

No, TDS under Section 194IA is deducted only on the basic purchase price of the property. GST or any other indirect tax levied on the transaction should not be included in the amount for TDS deduction.

Q16. How can a buyer correct an error made while filing Form 26QB?

If there is an error while filing Form 26QB, the buyer can submit a correction request through the TRACES portal. Details such as the seller's PAN, buyer's PAN, property details, and the amount of TDS deducted can be rectified online.

Q17. Can TDS be deducted on the sale of property if the transaction is made through a loan?

Yes, even if the property is purchased using a loan, TDS must be deducted from each disbursement made to the seller. The responsibility to deduct TDS lies with the buyer, regardless of whether the payment is made from personal funds or through a loan.

Q18. Is TDS applicable on the sale of under-construction property?

Yes, TDS is applicable on the sale of under-construction property if the sale value exceeds Rs. 50 lakhs. The buyer must deduct TDS on each installment paid to the builder or seller.

Q19. Does the buyer have to provide any proof of TDS deduction to the seller?

Yes, after the buyer has deducted and deposited TDS, they need to issue Form 16B (TDS certificate) to the seller, which serves as proof that TDS has been deducted and deposited with the government.

Q20. What is the penalty for late filing of Form 26QB?

If Form 26QB is filed after the due date, a penalty of Rs. 200 per day is levied for the period of delay. However, the total penalty amount cannot exceed the TDS amount itself.

Q21. What if the buyer deducts TDS at a lower rate than required?

If the buyer deducts TDS at a lower rate, they may be liable to pay the difference to the government along with applicable interest and penalties. The seller will not receive credit for the full amount if TDS is deducted incorrectly.