The buying or selling transaction of a property is one of the major financial transactions under the area of transfer of property; the government ensures that it should be properly tracked for tax purposes and for the audit of the government because it comes under the tax slab of the government. One such provision in the Income Tax Act of India is Section 194IA, which specifies the concept of Tax Deduction at Source (TDS) on the sale of immovable property. The particular section ensures that tax compliance is maintained, prevents tax evasion in real estate transactions, and helps to avoid unnecessary legal complexities.
In this article, we will deal and discuss the provisions of Section 194IA, including its applicability, TDS rates, exemptions, payment procedure, consequences of non-compliance, and other relevant aspects in a simplified manner and various aspect which need to understand in a proper manner.
What is Section 194IA?
Section 194IA of the Income Tax Act, 1961 was introduced in Finance Act 2013 and became effective from June 1, 2013. According to this section, when a buyer purchases an immovable property (except agricultural land) worth ₹50 lakh or more, the buyer must deduct 1% TDS on the total transaction value and deposit it with the government.
Key Features of Section 194IA
- Applicable on Property Sales: This section applies to the sale of immovable property, including land, buildings, residential, and commercial properties (except agricultural land).
- Threshold Limit: TDS applies only if the transaction value is ₹50 lakh or more.
- Rate of TDS: The applicable TDS rate is 1% of the sale consideration.
- Who Deducts TDS? The buyer (purchaser) is responsible for deducting and depositing the TDS, not the seller.
- No Need for TAN: Unlike other TDS deductions, the buyer does not need a Tax Deduction Account Number (TAN) to deduct TDS under Section 194IA.
- Form 26QB: The deducted TDS must be deposited using Challan-cum-statement Form 26QB.
- TDS Certificate: The buyer must issue Form 16B as a TDS certificate to the seller.
Applicability of Section 194IA
Who is Liable to Deduct TDS?
- Any individual, Hindu Undivided Family (HUF), company, or firm who is buying an immovable property is liable to deduct TDS if the value exceeds ₹50 lakh.
- Both resident and non-resident Indian (NRI) sellers are covered under this provision.
What Types of Property are Covered?
- Residential properties (apartments, flats, houses, villas, etc.).
- Commercial properties (office spaces, shops, etc.).
- Land (other than agricultural land).
What is Exempted?
- Agricultural land is not covered under Section 194IA.
- Properties valued below ₹50 lakh are exempt from this provision.
- Calculation of TDS Under Section 194IA
- TDS is calculated at 1% of the total sale consideration.
- If the sale consideration is ₹55 lakh, the buyer must deduct ₹55,000 (1% of ₹55 lakh) as TDS and pay the remaining amount to the seller.
- If the payment is made in installments, the buyer should deduct TDS proportionally on each installment.
Example: If Mr. A purchases a flat from Mr. B for ₹60 lakh, Mr. A should deduct 1% TDS (₹60,000) before making the payment and deposit it with the government.
Procedure of Deduction and Deposit of TDS
- The buyer must need to deduct 1 percent of the total transaction value or you can say the total income before making any of the payment or the transaction to the seller in the terms of TDS.
- The buyer must fill Form 26QB online through the TDS portal of the Income Tax Department within 30 days from the end day of the month in which TDS was deducted.
- The buyer can pay the amount of TDS to the seller online through Net Banking, Debit Card, or at authorized bank branches.
- After depositing the amount TDS in the account of seller, the buyer needs to generate Form 16B from the TRACES portal for the future procedure to complete and provide it to the seller as proof of tax deduction.
Consequences of Non-Compliance
- Late Deduction of TDS: If the buyer fails to deduct TDS, interest at 1% per month will be charged until the TDS is deducted.
- Late Payment of TDS: If the deducted TDS is not deposited within the due date, interest at 1.5% per month will be charged until payment is made.
- Late Filing of Form 26QB: A late filing fee of ₹200 per day will be levied under Section 234E until the form is filed.
- Penalty for Non-Deduction or Non-Payment: Section 271C, express that the Income Tax Department can be imposed a penalty which is equal to the TDS amount for failure to deduct or deposit TDS.
Important Points to Keep in Mind
- Multiple Buyers and Sellers: If there are multiple buyers or sellers in a transaction, each buyer must deduct TDS separately for their respective shares.
- TDS on Stamp Duty Value: If the sale of consideration is lower than the stamp duty value, TDS should be deducted from the higher value.
- TDS is Applicable Even for Under-Construction Property: If you are purchasing an under-construction property, TDS must be deducted on each installment paid to the builder if the total property value exceeds ₹50 lakh.
Conclusion
Section 194IA ensures tax compliance in real estate transactions by mandating TDS deduction on property sales above the limit of ₹50 lakh. Buyers must be diligent and must be aware of the facts of deducting and depositing 1% TDS within the due date to avoid penalties. On the other hand, Seller needs to be aware and ensure that they receive Form No. 16B from the buyer to claim tax credits and other reeled transaction value. Understanding and complying with Section 194IA is essential to ensure a smooth property transaction without legal or financial complications.
By following these provisions correctly, both buyers and sellers can avoid unnecessary penalties and ensure a hassle-free real estate transaction.
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Frequently Asked Questions
1. Is TDS applicable on the sale of agricultural land?
No, agricultural land is exempt from TDS under Section 194IA.
2. Can the seller claim a TDS refund?
Yes, surely the seller can claim a TDS refund while filing their income tax return if their total tax liability is lower than the TDS deducted.
3. What happens if the buyer does not deduct TDS?
The buyer will be liable for interest, penalties, and prosecution under the Income Tax Act.
4. Is TDS applicable on inherited property?
If the buyer is purchasing an inherited property and the transaction value exceeds ₹50 lakh, TDS is applicable.
5. How can I check if my TDS has been deposited?
The seller can check Form 26AS on the Income Tax e-filing portal to verify if the TDS has been deposited.
