TDS on Purchase of Property – Section 194IA of the Income Tax Act, 1961

When purchasing a property worth more than Rs 50 lakh in India, buyers have to follow certain tax procedures. These also include Tax Deducted at Source (TDS) under Section 194IA of the Income Tax Act 1961. This mandate requires that buyers of property, whether residential or commercial deduct TDS at 1% if the property is worth Rs. 50 lakh or more, except agricultural land. Both resident and non-resident buyers must go through this process, and there are specific requirements, such as completing Form 26QB, issuing Form 16B, and registering on the TRACES system, to assure compliance. This tutorial discusses the major components of TDS on property transactions and provides a step-by-step overview for easy compliance.

The Finance Act 2013-14 has introduced the TDS on transfer of immovable property.

As per the below provision section, TDS on the purchase of property is required to be deducted at the rate of 1% if the amount of consideration is fifty lakhs or more than fifty lakhs and the property is other than agricultural land. The property on which TDS must be deducted may be residential or commercial.

Below is an extract of the law by which TDS on property is required to be deducted:

194-IA. (1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of 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 or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one percent of such sum  [or the stamp duty value of such property, whichever is higher,] as income-tax thereon.

TDS on purchase of immovable property by Resident:

• TDS will be required to be deducted u/s 194-IA @1% of the amount paid.
• The mode of deposit for TDS will be filing form 26QB.
• Form 26QB is required to be filed within 30 days from the end of the month in which sale consideration/installment is paid.
• TDS certificate is to be issued in form 16B. 

TDS on purchase of immovable property by Non-resident

When a NRI purchases an immovable property in India, there are certain Tax Deducted at Source (TDS) provisions that are required to be complied with. TDS provisions require the NRI buyer/payer of immovable property to deduct TDS and deposit it to the Government of India, on behalf of the Seller/Payee. The rate of TDS is determined by the residential status of the Seller and the nature of capital gains.

If a Non-resident purchases the property from a resident:

• TDS will be required to be deducted u/s 194-IA @1% of the amount paid to residents.
• The mode of deposit for TDS will be filing form 26QB.
• Form 26QB is required to be filed within 30 days from the end of the month in which sale consideration/installment is paid.
• TDS certificate is to be issued in form 16B. 

If Non-resident purchase the property from Non-resident:

• TDS will be required to be deducted u/s 195 of the Income Tax Act, 1961, the tax rate would be applicable as applicable on long-term Capital Gain/Short-term Capital Gain.
• The mode of deposit of TDS will be challan no. 281.
• Form 27Q is required to be filed within 30 days from the end of the quarter in which tax was deducted and paid.
• TDS certificate is to be issued in Form 16A.

Consequence of non-deduction/late deduction of TDS:

• Non-deduction/ Late Deduction of Tax: Interest for late deduction of TDS is applicable at the rate of 1% per month or part of the month. It is applicable from the date on which tax was deductible to the date of actual deduction.
• Non-payment of Tax: Interest for late payment of TDS is applicable at the rate of 1.5% per month or part of the month. It is applicable from the date on which tax was deducted till the date of actual payment.
• Fees for the delay in furnishing the statements (26QB): Rs.200 per day till the day of furnishing the statement subject to fees not exceeding the amount of TDS.  

Steps for payment of TDS on purchase of Property:

Step 1:

For e-Payment through Challan 26QB (Online):

1.  Log in to your account on the Income Tax e-filing portal. Select e-File > click on e-Pay Tax
2.  Click on ‘+ New Payment’
3.  Click on the proceed button on the tab ‘26QB- TDS on Property’ and add necessary details relating to Buyer, Seller, and Property Transferred.
4. Enter payment details as per the available options (i.e., Net banking, Debit Card, Pay at Bank Counter, RTGS/NEFT, and Payment Gateway/UPI) and proceed to complete the payment.
5. If the payment is made through ‘Pay at Bank Country’ mode and duly coordinating/submitting details to the Authorized bank, the selected Authorized bank will generate the challan details
6. If the payment is made by any other mode, a Challan along with the Challan Identification Number shall be generated.

Step 2: Subsequently, the NRI buyer needs to register himself on the TRACES(an Income Tax Department website) (i.e. https://www.tdscpc.gov.in) as a taxpayer and generate online Form 16B as a certificate for tax deduction; and

Step 3: Form 16B so generated, shall have to be provided to the Resident Seller of the property.

Understanding the TDS requirements on property transactions is essential for a smooth and legally compliant purchase process. Deducting TDS at the right time, filing the correct forms, and issuing certificates like Form 16B or 16A prevent penalties and ensure transparency in high-value property transactions. Whether you’re a resident or non-resident buyer, following these guidelines will help you fulfill your tax obligations and avoid interest charges or late fees. Use this guide to navigate the process confidently and avoid common pitfalls in TDS compliance.

Frequently Asked Questions for TDS on Property:

Question 1: Who is liable to deduct and pay the TDS in case sale and purchase of property?

Answer: The Buyer of the property is responsible for the deduction and deposit of TDS to Government on the behalf of the seller.

Question 2: What is the threshold limit for TDS on purchase transactions?

Answer: TDS is applicable if the sale consideration exceeds 50 lakhs. This limit applies to both residential and commercial property.

Question 3: Whether TDS on the purchase of property is also paid by Non-resident Indians?

Answer: TDS on the purchase of property is required to be deducted and deposited by non-residents in India also just like Indian Residents.

Question 4: whether TDS on the purchase of immovable property is required to be deducted if consideration is less than 50 Lakh but stamp duty value is more than 50 lakhs?

Answer: TDS is required to be deducted considering the provision of section 194IA, TDS is deducted on the amount of consideration for the stamp duty value of such property whichever is higher.

Question 5: How will the TDS be required to be deducted on property in case of Joint owners?

Answer: Joint owners are required to deduct TDS on their share of the property. Each owner must deduct TDS on their respective share, and they must submit separate TDS returns.