TDS on Property

TDS on Property: Overview

What is Property Tax?

Buying a property is an important financial milestone for an individual and it involves taking a loan and repayment of it. Along with this comes the benefit of tax deduction on the re-payments of interests and principal amounts. However, there is one more responsibility of the buyers which is Tax Deduction at Source (TDS).TDS is now applicable for the purchase of the immovable properties like a building, a part of a building or purchasing a piece of land. It is applicable for the properties that cost over ₹50 lakhs. TDS on sale of property was introduced in the Finance Act of 2013-14.  As per Section 194 IA of Income Tax Act 1961, TDS is applicable for all transactions as a part of imposing tax on any capital gain that are taking place from June 1, 2013 onwards. This is effective for:

  • All property transactions of ₹50 Lakhs and above
  • Tax will be collected at 1% rate
  • The purchaser has to deduct the required amount of tax at the time of purchase while making payment of the selling consideration to the seller
  • This tax has to be deposited to the Government
  • Tax payment has to be made through any authorised bank
  • Agricultural land is excluded from the purview of this deduction

Agricultural lands that are excluded from TDS at the time of sale transaction are defined as:

  • A land that is not situated within the jurisdiction of any Cantonment Board or Municipality that is having a population of at least 10,000
  • The land should be more than 2 km away (Aerial distance) from a Cantonment Board or Municipality in case the population of municipality is between 10,000 and 1,00,000
  • The land should be more than 6 km away (Aerial distance) from a Cantonment Board or Municipality in case the population of municipality is between 1,00,000 and 10,00,000
  • The land should be more than 8 km away (Aerial distance) from a Cantonment Board or Municipality in case the population of municipality is more than 10,00,000

The Purchase Transaction and TDS Deduction

  • If the transaction amount is up to ₹50 Lakhs, no TDS is done. However, if the amount exceeds ₹50 lakhs, then 1% TDS is due on the entire sale amount. For example, if the sale consideration is ₹49 lakhs, no tax deduction is done but in case the sale transaction is of ₹51 Lakhs, then 1% tax is deducted on 51 Lakhs
  • TDS deduction takes place either when the payment is done or at the time when credit is given to seller, whichever happens earlier. The date on which the transfer took place is irrelevant. The payment dates matter for TDS
  • If the payments are done in instalments then TDS has to be made separately for each instalment
  • In case there are multiple buyers for a property and purchase price for individual buyer is less than ₹50,00,000 but the cumulative amount of purchase exceeds ₹50,00,000, then TDS will be applicable for the transaction and to be deposited to Government
  • In case there are multiple sellers and the sale amount for each seller is less than ₹50,00,000 but the aggregate amount of sale exceeds ₹50,00,000 then buyer has to de3duct TDS while making payment

TDS Related Responsibilities of the Parties Involved in the Sale of Property

  • For the Buyer:
  1. Buyer needs to deduct tax at source (TDS) at 1% rate out of sale consideration
  2. Buyer has to get the PAN number from the seller and verify with Original document to ensure authenticity and correctness
  3. Permanent Account Number (PAN) of both seller and Purchaser need to be provided mandatorily while filling up the online Form for furnishing all required data and information regarding sale transaction
  4. A buyer does not require to get a Tax Deduction Account Number (TAN)
  5. Avoid error while inputting PAN and other important details online. Once submitted, error can only be rectified by contacting the Department of Income Tax. Errors cannot be corrected online after the form is submitted
  6. The buyer has to deposit the TDS along with the Form 26QB. This has to be done within seven days following the end of the previous month in which actually TDS was deducted
  7. Subsequent to the deposition of TDS to Government, the purchaser has to produce Tax deduction Certificate to seller. After the deposit, it takes around 10-15 days for the certificate to be available
  8. The Buyer needs to get Form 26QB for paying the TDS
  • For the Seller:
  1. Seller had to provide Permanent Account Number to the buyer who in turn will fill up the form online and submit to Income Tax Department for TDS
  2. If the buyer does not provide PAN, then tax deduction is at the rate of 20%
  3. Seller needs to verify that the buyer has deposited the taxes that was deducted from sale consideration and that should be reflecting in the Form 26AS Annual Tax Statement
  4. The seller is needed to get  Form 16B for paying TDS

How to Register TDS on Sale of Property?

  • Once payment is made for purchase transaction of property, in eligible cases, the buyer will have to deposit TDS to Income Tax Department. This has to be done by depositing Form 26QB which could be filled either online or offline. Form 26QB is available in the link:
  • For 26QB has to be filed by the buyer within 7 days following the month when the buyer deducted TDS from sale consideration
  • Payment can be done online through net banking or  deposited at the branch of any bank.
  • A seller might not be able to avail the tax credit in case Form 26QB is not filed or filed late by the buyer

Steps involved for filling Form 26QB

  • Log in to the web site:
  • Click on the item: "Online form for furnishing TDS on property (Form 26QB)" Under 'TDS on sale of property'
  • Select "TDS on Sale of Property" as the applicable challan
  • To fill up the form following information is needed:
    • PAN of both the Seller and the Buyer
    • Detail of the property
    • Seller’s Residential status
    • Contact details of both the Seller and the Buyer including Addresses and contact numbers
    • The detail about tax deposited and the Amount paid/credited
  • Once the form is filled, submit it to proceed. ​A screen appears regarding confirmation. Then comes a screen that has two buttons named: "Print Form 26QB" and "Submit to the bank". On the screen, an acknowledgement number that is unique for every case will be displayed. Saving this acknowledgment number is recommended for this will be needed to use in future.
  • ​​Form 26QB could be now printed by clicking "Print Form 26QB" option. If the buyer wants to make online payment they have to proceed by clicking “Submit to the bank" and make the payment through the payment page using net banking facility. Authorised banks are listed in the site:
  • Once payment is through, there will be display of a challan counterfoil indicating CIN, name of the bank through which online payment is made and all the payment details. This counterfoil is the proof of the payment that is made by the buyer
  • In case the buyer is not paying through online, the unique Acknowledgement Number has to be produced to the authorised banks along with the cheque. Bank will do the necessary steps and generate the challan for the buyer. The unique Acknowledgement Number is valid for 10days after generating

Steps Involved for Downloading Form 16B

Once the buyer submits TDS, the buyer has to issue Form 16B to the seller. This is the TDS certificate for the seller that reflects how much tax was deducted and deposited to the Government due to sale transaction and the tax credit goes to the seller. Form 16B will be available in TRACES portal after the deposit is made. Both Form 26QB and Form 16B will be available for both the seller and the buyer once they register in the TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal. They can check Form 26AS one week after the payment is made. Payment should be reflecting under ‘Part F’ of the Form 26AS. This also gives detail about TRACES-generated TDS Certificate Number, Name and PAN detail of the person from whom the taxes are deducted, Amount and Date of transaction, the unique Acknowledgement Number (Same as the one in Form 36QB), the amount of TDS deposited and the deposit date.

The steps involved in downloading Form 16B are as follow:
  • Once the payment is reflected in Form 26AS, Form 16B could be generated
  • For a First-time user, one has to register in TRACES portal ( www.tdscpc(dot) and log in as tax payer using PAN
  • From ‘Downloads’ options, need to select : “Form 16B” for buyers
  • All details related to the transaction of the subject property has to be entered to request for Form 16B. Unique Acknowledgement Number,  Year of Assessment, Seller’s PAN information has to be given here and has to ‘Proceed’ by clicking the button
  • Next screen will be the Confirmation screen. Click ‘Submit Request’ and proceed to the next screen
  • Message regarding success for submission for Download request appears. The ‘Request Number’ is important at this stage to note down. This will be needed for searching for Download request
  • "Requested Downloads" has to be clicked and this will download the files requested
  • Search with the ‘Request Number’ and the buyer has to select the specific row that was requested and download it

What is Form 26AS?

This form reflects the detail of tax deduction done by the deductor(s) on one’s income.  This Form contains information about:

  • Details regarding tax that are collected by various collectors
  • Payments of Self-assessment tax
  • The amount of Advance tax that is paid by taxpayer
  • For a financial year detail of all the refund received by a Tax payer
  • Regular assessment taxes that are  deposited by taxpayers (PAN holders)
  • Details involving transactions of High value in areas of shares, mutual fund etc.

Penalties Involved in the Process

  • Late deposit of the TDS on property collected by the Buyer -- If TDS is deducted by the buyer but the deposit of the amount is not done with Income Tax department on time then the buyer might have to face a penalty starting from ₹10,000 up to ₹ 1 lakh
  • Interest charged for the late deposit of TDS by the buyer -- In case TDS is not deposited, the Income Tax department will issue a Notice. In such cases it is highly recommended to pay TDS with applicable interests and late charges to avoid penalty. Interest rate for not making TDS is 1% monthly and in case deduction was made but TDS was not deposited, the interest rate is 1.5% monthly
  • Late Filing of the Form 26QB by the buyer – In such cases a daily penalty of ₹200 is imposed to the buyer

Important Notes to Conclude

  • It is mandatory for each set of buyer and seller to fill up the 26QB Challan for their part of transaction. If there is one buyer and two sellers, the forms to be filed is 2. But if there are two buyers and two sellers for the same property, then the total number of forms to be filed is 4, one for each set of Buyer-seller combination
  • In case Excess TDS is deducted during transaction then the seller can claim the refund of the excess amount paid at the time of foiling Income tax Return
  • Form 26QB can only be submitted through online portal whereas payment could be online or manually through authorised banks
  • It is important that both the buyer and seller file their Income Tax returns for the year when the transaction took place, otherwise this might cause a notice generation by Income Tax Department
  • Tax Deduction and Collection Account Number (TAN) is not mandatory for either the buyer or seller
Get Free Credit Report