TDS on Immovable Property

Updated: 28-08-2023 07:49:33 AM

TDS or Tax Deducted at Source is the collection of tax by a party to a transaction on behalf of the government. The TDS deductor pays the tax collected to the government. TDS has to be deducted at 1% from resident Indian sellers if the transaction is more than Rs 50 lakh in value. For NRIs sellers, TDS has to be deducted regardless of sale value. The TDS rate is 30% for such sellers who are selling their property within 2 years of purchase and 20% in case of sales after 2 years. If you are renting a property TDS has to be deducted at 5% if the monthly rent exceeds Rs 50,000. In addition, if you are subject to audit (this mostly applies to businessmen) and paying more than Rs 1.8 lakh in annual rent, you have to deduct TDS. We give you the details of the above TDS provisions in this article.

 

Immovable property means any land (other than agricultural land) or any building or part of building. Agricultural land as per The Income Tax Act “means agricultural lands in India, not being a land situated in any area referred to in section 2(14)(iii)(a)/(b)”.

Land will not be considered as Agriculture Land, if:

a)  The land is situated within the jurisdiction limits of Municipality or Cantonment Board having a population of not less than 10,000; or

b)  It is situated in an area falling within the below limits:

Population of Municipality	Distance from Municipality/ Cantonment Board
>10,000 but ≤ 1,00,000	Within 2 km
>1,00,000 but ≤ 10,00,000	Within 6 km
>10,00,000	Within 8 km

Applicability of TDS on immovable property can be bifurcated into two parts, rent on immovable property and transfer of immovable property.

TDS on rent of immovable property

TDS on rent on immovable property such as flats, shops, land etc is required to be deducted in two types of circumstances.

• By persons liable for tax audit

As per section 194I, any person (except individual and HUF) who is liable for tax audit is required to deduct TDS on rent paid by him if the total amount of rent paid during the financial year exceeds Rs 1,80,000/-. Usually individuals/HUFs with income from business and profession above certain limits are liable for tax audit. Such TDS has to be deducted at the time of payment of rent. Hence, if the rent is paid monthly, TDS will be deducted monthly; if the rent is paid quarterly then TDS shall be deducted quarterly and so on. The limit of Rupees 1,80,000/- is applicable per taxpayer, i.e. TDS shall be deducted only if rental income of the taxpayer is more than 1,80,000/-. This can be understood from the following example:

Example 1: If there are two co-owners of the property and total rent paid to the co-owners is Rupees 2 lakhs, which means that the rental income of each co-owner is 1 Lakh, i.e. less than 1,80,000/-, hence in this case TDS is not required to be deducted.

Example 2:  If there are two co-owners of the property and total rent paid to the co-owners is Rupees 4 lakhs, which means that the rental income of each co-owner is 2 Lakhs, i.e. more than 1,80,000/-, hence in this case TDS is required to be deducted.

• By anyone paying rent of more than Rs 50,000

Under Section 194IB, any individual or entity paying more than Rs 50,000 per month in rent is required to deduct TDS at 5%. Such TDS only needs to be deducted once a year. For example if you have an 11 month rent agreement, you can deduct the TDS amount for the whole year’s rent in the 11th month. Let’s assume that your rent is Rs 80,000 per month, which translates to 9,60,000 per year. This means that you have to deduct TDS of Rs 48,000 in the 11th month from the rent of Rs 80,000 payable for that month. The deductor also does not need a TAN (Tax Deduction Account Number).

• How to make the TDS deduction

The TDS has to be deducted by filling Form 26QC which is a challan-cum-statement. The deductor has to provide a TDS certificate (Form 16C) to the landlord.

• TDS on transfer of Immovable Property

In case of transfer of immovable property, the buyer/transferee is responsible to deduct tax at source on the amount to be paid before making the payment to the transferor.  However, this provision shall not be applicable if the transaction value is less than Rs 50 Lakhs.

Hence, it can be noted that the provisions of this section is applicable only if following conditions are satisfied:

1. There has to be a transfer of immovable property
2. Such immovable property should be property other than agriculture land
3. Purchase consideration to be more than Rupees 50 lakhs
4. The seller/ transferor of the property to be a resident
   

Points to remember:

1. Type of property: TDS under section 194IA is applicable in case of all kinds of properties except agricultural land. Thus, it is applicable in case of residential as well as commercial properties. It is also applicable irrespective of whether the property being purchased is a vacant land, a building or just a flat.
2. Amount of TDS: TDS has to be deducted at the prescribed rate on the entire amount of consideration paid towards transfer of property. Hence, if the sale consideration is Rupees 90 Lakhs, then TDS has to be deducted on the entire amount of 90 Lakhs and not on balance 40 Lakhs.
3. Rate of TDS: Presently, the rate applicable for deduction of TDS on transfer of immovable property is 1%.
4. Lower rate of TDS: Unlike in other cases where subject to certain specified conditions being complied with, TDS can be deducted at a lower rate of return; no such provisions are applicable in case of TDS on transfer of immovable property. Hence, buyer cannot make an application to the Income Tax Department for deduction of TDS at a lower rate.
5. Time of deducting TDS: TDS is to be deducted at the time of payment of sale consideration. The sale consideration may be paid in the form of cash/ DD/ cheque or any other mode. TDS is to be deducted at the time of payment of such consideration or at the time of credit of such amount to the account of seller, whichever is earlier.
6. Home Loan: In case the buyer has taken home loan on the property being purchased, then TDS shall be deducted at the time of payment of sale consideration to the seller and not at the time of payment of EMIs to the financial institution. Further, in case of home loan, payment is directly made by the financial institution to the seller, it is the responsibility of the buyer (and not of the financial institution) that TDS is deducted before the payment is made.
7. Sale consideration in installment: As per Income Tax Act, the transferee has to deduct TDS at the time of payment of sale consideration. Hence,  if sale consideration is not paid in lump sum and is paid in installment, TDS is to be deducted at the time of payment of each installment.
8. Multiple Buyers: In case there is more than one buyer, then each buyer shall deduct TDS from his share of sale consideration. However for the purpose of eligibility of TDS provisions, total value of the property shall be considered. For example, if the value of property is 90 lakhs and it is being purchased by 2 buyers then in such case even though TDS is not applicable individually. However, since the total value of property is more than Rupees 50 Lakhs, TDS is required to be deducted by both the buyers.
9. Multiple Sellers: In case the buyer is purchasing property from multiple sellers, then TDS shall be deducted from the sale consideration being paid to all the sellers. However for the purpose of eligibility of TDS provisions, total value of the property shall be considered. For example, if the value of property is 90 lakhs and it is being held by 2 sellers then in such case even though TDS is not applicable on individual transaction, since the total value of property is more than Rupees 50 Lakhs, TDS is required to be deducted from the sale consideration being paid to both the transferors.
10. Requirement of TAN no.: Under this section, buyer of the property is exempt from the requirement of obtaining TAN No. for the purpose of deducting and depositing TDS.
11. Requirement of PAN no.: It is mandatory for the buyer as well as seller of the property to quote the PAN no. in the transaction.
12. Capital Gains to seller: TDS has to be deducted irrespective of the amount of capital gain earned by the seller. Hence, even if the seller is liable for a lower amount of capital gain tax, 1% TDS shall be deducted. However in this case, such excess amount deducted can be claimed as refund at the time of filing of income tax return.

Calculation of TDS amount

TDS is to be calculated on the sale consideration payable to be seller. It doesn’t include VAT/GST and service tax. Thus for example, let’s assume that the sale consideration is Rupees 90 Lakhs, service tax is 3 Lakhs and VAT is 90,000. In such case the amount payable is 93,90,000/- (90,00,000 + 3,00,000 + 90,000). However, TDS will be 1% of 90 Lakhs, i.e. 90,000/-.

In case of NRI seller

The above Section 194IA of The Income Tax Act is applicable only  if the transferor of the property is Resident Indian. However, if the property is being purchased from a Non Resident, section 195 of The Income Tax Act is applicable. This section provides for deduction of TDS in case of payment to NRIs and includes income of NRIs by the way of capital gains. In such case, TDS has to be deducted at the time of making the payment at the rates prescribed under Section 195. The rate is 30% if the property is sold within 2 years of purchase and 20% if it is sold after 2 years of purchase.

Depositing the TDS deducted

The amount of TDS deducted under section 194I and 194IA is required to be deposited with Central government along with Form 26QB within a period of seven days from the end of the month in which TDS is deducted. However, in case the TDS is deducted for the month of March, the same has to be deposited by April 30. Further, in case the TDS is deducted by or on behalf of Government the same has to be deposited on the same day, i.e. the date on which TDS is deducted. After the TDS along with Form 26QB is deposited with the Central government, the buyer has to furnish TDS Certificate to the seller. The same has to be made available within 10-15 days from depositing the TDS.

Steps to fill Form 26QB

1. Login to NSDL website link www.tin-nsdl.com.
2. Click on TDS on sale of property
3. Select applicable challan as Form 26QB Payment of TDS on sale of property
4. Fill in the required details:
   1. Tax applicable – Corporation Tax in case tax payer is a company and Income Tax in case of a non corporate tax payer
   2. Financial Year – select the financial year for which TDS is deducted.
   3. Status of the Payee/Seller/Transferor – Resident or non resident
   4. Other details – such as PAN No., name, address of transferor and transferee, property details, etc.
   5. Amount paid and tax deposited details
5. Click on Proceed
6. On confirmation screen, check the details entered and confirm.
7. Acknowledgement number is displayed on the screen along with two options – “Print form 26QB” and “Submit to Bank”.
8. Click on Print form 26QB to take the print out of the form
9. Click on “Submit to Bank” for making online payment through internet banking.
10. If the buyer does not want to deposit the TDS through internet banking, he may take the print out of Form 26QB and submit the same along with the payment at bank branch.
11. Once the payment is made, challan counterfoil is displayed containing CIN no. and payment details. This counterfoil is the proof of payment.

Process to download Form 16B

1. Logon to TRACES portal at www.tdscpc.gov.in.
2. Register as a tax payer
3. Under download menu, click on “Form 16B for Buyer”.
4. Enter the transaction details pertaining which form 16B is required.
5. Enter other details – Assessment year, Acknowledgement no., PAN no of the seller.
6. Click on Proceed.
7. On confirmation screen, check the details entered and confirm.
8. Download request page will be displayed containing the Request number.
9. Click on the “Requested Downloads” tab to download the files for which request has been raised.
10. Search for the request number (generated at the time of raising the request) and select it.
11. Click on “HTTP Download” to download the file.