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TDS on Sale of Property Explained in Detail

Sale Of Property TDS

The sale of real estate in India is one of several transactions that are subject to tax deducted at source (TDS). As stated in Section 194-IA of the income tax code, TDS on the sale of the property is applicable. If the property’s worth is up to Rs 50 lakh, buyers and sellers do not need to worry about TDS consequences at all. TDS will become applicable if the price is even one rupee higher.

According to the Finance Bill 2013, any buyer of an immovable property (other than rural agricultural land) valued at Rs. 50 lakh or more would have to deduct 1% withholding tax from the amount they would pay to the resident transferor.

The law requires that anybody (the deductor) who is obligated to pay money of a certain kind to another person (the deductor) deduct tax at source and submit it to the government. This implies that in property purchases, it would be the buyer’s obligation to deduct the TDS. Based on Form 26AS or a TDS certificate provided by the buyer, the seller whose income the tax has been deducted at source is entitled to get credit for the amount thus deducted.

As buying and selling real estate is a highly typical transaction, sellers and buyers often wonder what the tax implications will be. Due to the high prevalence of tax evasion in this market segment, buyers are now required to deduct TDS at a rate of 1% when paying sellers.

TDS on Property sales in 2023

Section 194IA of the Internal Revenue Code states that “Any person who is a transferee and is responsible for paying to a resident transferor any sum as 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, at the time of payment of a such sum in cash, by the issue of a cheque or draught, or by any other mode, whichever is earlier, deduct an amount equal to 1% of the amount. Moreover, since the government deducts capital gains tax on NRIs in addition to TDS, the treatment of assets sold by an NRI would differ in TDS matters. The rate of TDS is hence substantially higher in these circumstances.

When and how should TDS be deducted?

The buyer of the property must deduct the TDS either at the time the conveyance deed is executed or, if an advance is being paid before the conveyance deed, at the time the advance is paid. Within 30 days at the end of the month the tax is thus deducted, and the buyer must deposit the TDS amount to the credit of the central government. You must complete Form-cum-challan No. 26QB to provide further information and pay the TDS. If there are many buyers or sellers for a property, a separate Form 26QB must be filled out for each group of buyers and sellers. Both buyers’ and sellers’ information must be provided.

HOW OFTEN DOES TDS NOT NEED TO BE DEDUCTED?

1. a) If the property’s selling consideration or stamp duty value is less than 50 lakhs.
2. b) If the property under consideration is farmland.
3. c) Section 195 is applicable if the seller is a non-resident in such a situation.

Important Points To Be Remembered

1. a) TDS must be paid on all proceeds except GST.
2. b) You are not permitted to request a reduced TDS deduction under this clause.
3. c) TDS must be withheld regardless of whether an exception is requested or not.
4. d) In the case of a house loan, TDS is taken off when paying the seller, not when the EMI is paid to the bank.
5. e) If there are many buyers and the individual purchase price for each buyer is less than Rs. 50 lakhs but the total consideration exceeds Rs. 50 lakhs, TDS must be withheld.
6. f) This clause also applies to non-resident buyers.
7. g) TDS must be deducted from advance payments.
8. h) TDS is not subject to a surcharge or a tax.
9. i) If the vendor does not submit a PAN, TDS must be withheld at a rate of 20%.

Implications of not making TDS payments

The buyer is required by law to take the appropriate TDS out of the transaction value and properly submit it to the government. As a TAN is not required in their situation, buyers are free to utilize their PAN information in the forms. Customers who fail to pay the TDS to the government within the allotted time frame may be subject to interest charges or a harsh jail term of up to seven years. Please keep in mind that even though the seller might be required to pay, the person who would be penalized is the buyer.

Conclusion

TDS is deducted, which the buyer will see on his Form 26AS, and he has the option of taking a refund or using it to offset whatever tax he owes when completing his return. To stop the flow of black money, the government has made it the buyer’s responsibility to subtract from high-value transactions.