TDS on purchase of PROPERTY 1%
TDS, or Tax Deducted at Source, is the collection of tax on behalf of the government by a party to a transaction. The TDS deductor is responsible for remitting the tax collected to the government. If the transaction exceeds Rs 50 lakh in value, TDS must be deducted at a rate of 1% from resident Indian sellers. TDS must be deducted regardless of the sale value for NRIs. TDS is 30% for such sellers who sell their property within two years of purchase and 20% for those who sell after two years. If you rent a property and the monthly rent exceeds Rs 50,000, TDS must be deducted at a rate of 5%. Additionally, if you are audited (most commonly, businessmen) and pay more than Rs 1.8 lakh in annual rent, you must deduct TDS. This article contains the details of the aforementioned TDS provisions.
Immovable property includes all land (other than agricultural land) and all structures or portions of structures. According to the Income Tax Act, agricultural land "means agricultural lands in India that are not located in any area specified in section 2(14)(iii)(a)/(b)".
Land is not considered agricultural land if it meets the following criteria:
a) The land is located within the boundaries of a Municipality or Cantonment Board with a population of at least 10,000 people; or
b) It is located within the following boundaries:
Municipality's population
Distance from Municipality/Board of Cantonment
>10,000, but fewer than 1,000
Within a two-kilometer radius
>1,000 but less than 10,000
Within a six-kilometer radius
>10,00,000
Within a radius of eight kilometres
The application of TDS to immovable property can be divided into two categories: rent on immovable property and immovable property transfer.
TDS on immovable property rentals
TDS is required to be deducted on rent on immovable property such as flats, shops, and land in two situations.
- By individuals who may be audited for tax evasion
Section 194I requires any person (other than an individual or a HUF) who is subject to tax audit to deduct TDS on rent paid if the total amount of rent paid during the financial year exceeds Rs 1,80,000/-. Generally, individuals/HUFs with business and professional income exceeding certain thresholds are subject to tax audit. Such TDS must be deducted from rent payments. Therefore, if rent is paid monthly, TDS is deducted monthly; if rent is paid quarterly, TDS is deducted quarterly, and so forth. TDS shall be deducted only if the taxpayer's rental income exceeds Rupees 1,80,000/-. This is illustrated by the following example:
Example 1: If the property has two co-owners and the total rent paid to the co-owners is Rs. 2 lakhs, the rental income of each co-owner is Rs. 1 lakh, i.e. less than Rs. 1,80,000/-, and thus TDS is not required to be deducted in this case.
Example 2: If the property has two co-owners and the total rent paid to the co-owners is Rs. 4 lakhs, the rental income of each co-owner is Rs. 2 lakhs, i.e. more than Rs. 1,80,000/-, and thus TDS is required to be deducted in this case.
- By anyone who pays rent in excess of Rs 50,000
Section 194IB requires any individual or entity paying more than Rs 50,000 in rent per month to deduct TDS at a rate of 5%. Such TDS must be deducted only once a year. For instance, if your lease is for 11 months, you can deduct the TDS for the entire year's rent in the 11th month. Assume your monthly rent is Rs 80,000, which equates to Rs 9,60,000 per year. This means that in the eleventh month, you must deduct TDS of Rs 48,000 from the rent of Rs 80,000 payable for that month. Additionally, the deductor does not require a TAN (Tax Deduction Account Number).
- How to deduct TDS
TDS must be deducted through the use of Form 26QC, which is a challan-cum-statement. The deductor must provide the landlord with a TDS certificate (Form 16C).
- Stamp Duty on Immovable Property Transfers
In the case of an immovable property transfer, the buyer/transferee is responsible for deducting tax at the source from the amount to be paid prior to paying the transferor. This provision, however, does not apply if the transaction value is less than Rs 50 lakhs.
As a result, it should be noted that the provisions of this section are only applicable if the following conditions are met:
1. Immovable property must be transferred.
2. This immovable property should not be agricultural land.
3. The purchase price must exceed Rs. 50 lakhs.
4. The property's seller/transferor must be a resident.
Points to keep in mind:
TDS is applicable to all types of property except agricultural land under section 194IA. As such, it is applicable to both residential and commercial properties. It also applies regardless of whether the property is vacant land, a building, or simply a flat.
2. TDS amount: TDS must be deducted at the prescribed rate on the total consideration paid in connection with the transfer of property. Thus, if the sale consideration is Rs. 90 lakhs, TDS must be deducted on the entire sum of Rs. 90 lakhs, not just on the remaining Rs. 40 lakhs.
3. TDS rate: Currently, the rate for deducting TDS on the transfer of immovable property is 1%.
4. Lower rate of TDS: Unlike in other situations, where TDS can be deducted at a lower rate of return if certain conditions are met, no such provisions apply in the case of TDS on the transfer of immovable property. As a result, the purchaser cannot apply to the Income Tax Department for a reduced rate of TDS deduction.
5. Deduction of TDS at the time of payment of the sale consideration: TDS is to be deducted at the time of payment of the sale consideration. The purchase price may be paid in cash, demand draught, check, or any other method. TDS is to be deducted at the time of payment of such consideration or at the time such amount is credited to the seller's account, whichever occurs first.
6. Home Loan: If the buyer has taken out a home loan to purchase the property, TDS will be deducted at the time of payment of the purchase price to the seller, not at the time of payment of the EMIs to the financial institution. Additionally, because the financial institution pays the seller directly, it is the buyer's (and not the financial institution's) responsibility to ensure that TDS is deducted prior to payment.
7. Payment of sale consideration in instalments: Under the Income Tax Act, the transferee is required to deduct TDS at the time of sale consideration payment. Thus, if the sale consideration is not paid in one lump sum but rather in instalments, TDS must be deducted at the time of each instalment payment.
8. Multiple Buyers: If there are multiple buyers, each buyer is responsible for deducting TDS from his or her share of the sale consideration. However, for the purpose of determining whether a property is eligible for TDS provisions, the total value of the property must be considered. For instance, if the property is worth 90 lakhs and is being purchased by two buyers, even though TDS is not applicable individually, TDS is applicable in this case. However, if the total value of the property exceeds Rs. 50 lakhs, both buyers are required to deduct TDS.
9. Multiple Sellers: If a buyer purchases property from multiple sellers, TDS is deducted from the total amount paid to all sellers. However, for the purpose of determining whether a property is eligible for TDS provisions, the total value of the property must be considered. For instance, if the value of the property is 90 lakhs and it is held by two sellers, even though TDS is not applicable on individual transactions, TDS is required to be deducted from the sale consideration paid to both transferors because the total value of the property exceeds Rupees 50 lakhs.
10. Exemption from the requirement to obtain a TAN number for the purpose of deducting and depositing TDS: Under this section, the purchaser of the property is exempt from the requirement to obtain a TAN number for the purpose of deducting and depositing TDS.
11. PAN number requirement: It is mandatory for both the buyer and seller of the property to include the PAN number in the transaction.
TDS must be deducted regardless of the amount of capital gain earned by the seller. As a result, even if the seller is liable for a lower capital gain tax, 1% TDS must be deducted. However, in this case, the excess amount deducted may be claimed as a refund when the income tax return is filed.
Calculation of the TDS concentration
TDS is to be calculated on the seller's sale consideration. It is exclusive of VAT/GST and service tax. As an example, suppose the purchase price is Rs 90 lakhs, the service tax is Rs 3 lakhs, and the VAT is Rs 90,000. The amount payable in this case is 93,90,000/- (90,00,000 + 3,00,000 + 90,000). TDS, on the other hand, will be 1% of 90 lakhs, or 90,000/-.
In the case of an NRI vendor
Section 194IA of the Income Tax Act is only applicable if the property is transferred by a Resident Indian. If, on the other hand, the property is acquired from a non-resident, section 195 of the Income Tax Act applies. This section provides for the deduction of TDS on payments made to NRIs and includes NRIs' capital gains income. TDS must be deducted at the rate prescribed under Section 195 in this case. The rate is 30% if the property is sold within two years of purchase and 20% if sold after two years.
How to Complete Form 26QB
1. Visit the NSDL website at www.tin-nsdl.com and log in.
2. Select TDS on property sale from the drop-down menu.
3. Select the appropriate challan as Form 26QB Payment of TDS on property sale.
4. Complete the required information:
Corporation Tax is applicable if the taxpayer is a corporation, and Income Tax is applicable if the taxpayer is an individual.
Select the fiscal year for which TDS is deducted.
Payee/Seller/Transferor Status – Resident or Non-Resident
Additional information – such as the PAN number, the transferor's and transferee's names, the transferor's and transferee's addresses, and property information, etc.
Details on the amount paid and the tax deposited
5. Select Proceed.
6. On the confirmation screen, verify and confirm the information entered.
7. The acknowledgement number and two options – "Print form 26QB" and "Submit to Bank" – are displayed on the screen.
8. Click Print form 26QB to print the form.
9. Select "Submit to Bank" to initiate an online payment via internet banking.
10. If the buyer does not wish to deposit the TDS via internet banking, he may print out Form 26QB and submit it to the bank branch along with the payment.
11. After payment is made, a challan counterfoil is displayed with the CIN number and payment information. This counterfoil serves as evidence of payment.
The procedure for downloading Form 16B
1. Visit the TRACES portal at www.tdscpc.gov.in and log in.
2. Become a tax payer
3. Select "Form 16B for Buyer" from the download menu.
4. Enter the transaction information for the transaction for which a form 16B is required.
5. Enter additional information such as the assessment year, the acknowledgement number, and the seller's PAN number.
6. Select Proceed.
7. On the confirmation screen, verify and confirm the information entered.
8. A page titled "Download Request" will appear, containing the Request number.
9. Select the "Requested Downloads" tab to begin the process of downloading the files for which a request has been made.
10. Locate and select the request number (generated at the time the request was raised).
11. To download the file, click on "HTTP Download."
Immovable property includes all land (other than agricultural land) and all structures or portions of structures. According to the Income Tax Act, agricultural land "means agricultural lands in India that are not located in any area specified in section 2(14)(iii)(a)/(b)".
Land is not considered agricultural land if it meets the following criteria:
a) The land is located within the boundaries of a Municipality or Cantonment Board with a population of at least 10,000 people; or
b) It is located within the following boundaries:
Municipality's population
Distance from Municipality/Board of Cantonment
>10,000, but fewer than 1,000
Within a two-kilometer radius
>1,000 but less than 10,000
Within a six-kilometer radius
>10,00,000
Within a radius of eight kilometres
The application of TDS to immovable property can be divided into two categories: rent on immovable property and immovable property transfer.
TDS on immovable property rentals
TDS is required to be deducted on rent on immovable property such as flats, shops, and land in two situations.
- By individuals who may be audited for tax evasion
Section 194I requires any person (other than an individual or a HUF) who is subject to tax audit to deduct TDS on rent paid if the total amount of rent paid during the financial year exceeds Rs 1,80,000/-. Generally, individuals/HUFs with business and professional income exceeding certain thresholds are subject to tax audit. Such TDS must be deducted from rent payments. Therefore, if rent is paid monthly, TDS is deducted monthly; if rent is paid quarterly, TDS is deducted quarterly, and so forth. TDS shall be deducted only if the taxpayer's rental income exceeds Rupees 1,80,000/-. This is illustrated by the following example:
Example 1: If the property has two co-owners and the total rent paid to the co-owners is Rs. 2 lakhs, the rental income of each co-owner is Rs. 1 lakh, i.e. less than Rs. 1,80,000/-, and thus TDS is not required to be deducted in this case.
Example 2: If the property has two co-owners and the total rent paid to the co-owners is Rs. 4 lakhs, the rental income of each co-owner is Rs. 2 lakhs, i.e. more than Rs. 1,80,000/-, and thus TDS is required to be deducted in this case.
- By anyone who pays rent in excess of Rs 50,000
Section 194IB requires any individual or entity paying more than Rs 50,000 in rent per month to deduct TDS at a rate of 5%. Such TDS must be deducted only once a year. For instance, if your lease is for 11 months, you can deduct the TDS for the entire year's rent in the 11th month. Assume your monthly rent is Rs 80,000, which equates to Rs 9,60,000 per year. This means that in the eleventh month, you must deduct TDS of Rs 48,000 from the rent of Rs 80,000 payable for that month. Additionally, the deductor does not require a TAN (Tax Deduction Account Number).
- How to deduct TDS
TDS must be deducted through the use of Form 26QC, which is a challan-cum-statement. The deductor must provide the landlord with a TDS certificate (Form 16C).
- Stamp Duty on Immovable Property Transfers
In the case of an immovable property transfer, the buyer/transferee is responsible for deducting tax at the source from the amount to be paid prior to paying the transferor. This provision, however, does not apply if the transaction value is less than Rs 50 lakhs.
As a result, it should be noted that the provisions of this section are only applicable if the following conditions are met:
1. Immovable property must be transferred.
2. This immovable property should not be agricultural land.
3. The purchase price must exceed Rs. 50 lakhs.
4. The property's seller/transferor must be a resident.
Points to keep in mind:
TDS is applicable to all types of property except agricultural land under section 194IA. As such, it is applicable to both residential and commercial properties. It also applies regardless of whether the property is vacant land, a building, or simply a flat.
2. TDS amount: TDS must be deducted at the prescribed rate on the total consideration paid in connection with the transfer of property. Thus, if the sale consideration is Rs. 90 lakhs, TDS must be deducted on the entire sum of Rs. 90 lakhs, not just on the remaining Rs. 40 lakhs.
3. TDS rate: Currently, the rate for deducting TDS on the transfer of immovable property is 1%.
4. Lower rate of TDS: Unlike in other situations, where TDS can be deducted at a lower rate of return if certain conditions are met, no such provisions apply in the case of TDS on the transfer of immovable property. As a result, the purchaser cannot apply to the Income Tax Department for a reduced rate of TDS deduction.
5. Deduction of TDS at the time of payment of the sale consideration: TDS is to be deducted at the time of payment of the sale consideration. The purchase price may be paid in cash, demand draught, check, or any other method. TDS is to be deducted at the time of payment of such consideration or at the time such amount is credited to the seller's account, whichever occurs first.
6. Home Loan: If the buyer has taken out a home loan to purchase the property, TDS will be deducted at the time of payment of the purchase price to the seller, not at the time of payment of the EMIs to the financial institution. Additionally, because the financial institution pays the seller directly, it is the buyer's (and not the financial institution's) responsibility to ensure that TDS is deducted prior to payment.
7. Payment of sale consideration in instalments: Under the Income Tax Act, the transferee is required to deduct TDS at the time of sale consideration payment. Thus, if the sale consideration is not paid in one lump sum but rather in instalments, TDS must be deducted at the time of each instalment payment.
8. Multiple Buyers: If there are multiple buyers, each buyer is responsible for deducting TDS from his or her share of the sale consideration. However, for the purpose of determining whether a property is eligible for TDS provisions, the total value of the property must be considered. For instance, if the property is worth 90 lakhs and is being purchased by two buyers, even though TDS is not applicable individually, TDS is applicable in this case. However, if the total value of the property exceeds Rs. 50 lakhs, both buyers are required to deduct TDS.
9. Multiple Sellers: If a buyer purchases property from multiple sellers, TDS is deducted from the total amount paid to all sellers. However, for the purpose of determining whether a property is eligible for TDS provisions, the total value of the property must be considered. For instance, if the value of the property is 90 lakhs and it is held by two sellers, even though TDS is not applicable on individual transactions, TDS is required to be deducted from the sale consideration paid to both transferors because the total value of the property exceeds Rupees 50 lakhs.
10. Exemption from the requirement to obtain a TAN number for the purpose of deducting and depositing TDS: Under this section, the purchaser of the property is exempt from the requirement to obtain a TAN number for the purpose of deducting and depositing TDS.
11. PAN number requirement: It is mandatory for both the buyer and seller of the property to include the PAN number in the transaction.
TDS must be deducted regardless of the amount of capital gain earned by the seller. As a result, even if the seller is liable for a lower capital gain tax, 1% TDS must be deducted. However, in this case, the excess amount deducted may be claimed as a refund when the income tax return is filed.
Calculation of the TDS concentration
TDS is to be calculated on the seller's sale consideration. It is exclusive of VAT/GST and service tax. As an example, suppose the purchase price is Rs 90 lakhs, the service tax is Rs 3 lakhs, and the VAT is Rs 90,000. The amount payable in this case is 93,90,000/- (90,00,000 + 3,00,000 + 90,000). TDS, on the other hand, will be 1% of 90 lakhs, or 90,000/-.
In the case of an NRI vendor
Section 194IA of the Income Tax Act is only applicable if the property is transferred by a Resident Indian. If, on the other hand, the property is acquired from a non-resident, section 195 of the Income Tax Act applies. This section provides for the deduction of TDS on payments made to NRIs and includes NRIs' capital gains income. TDS must be deducted at the rate prescribed under Section 195 in this case. The rate is 30% if the property is sold within two years of purchase and 20% if sold after two years.
How to Complete Form 26QB
1. Visit the NSDL website at www.tin-nsdl.com and log in.
2. Select TDS on property sale from the drop-down menu.
3. Select the appropriate challan as Form 26QB Payment of TDS on property sale.
4. Complete the required information:
Corporation Tax is applicable if the taxpayer is a corporation, and Income Tax is applicable if the taxpayer is an individual.
Select the fiscal year for which TDS is deducted.
Payee/Seller/Transferor Status – Resident or Non-Resident
Additional information – such as the PAN number, the transferor's and transferee's names, the transferor's and transferee's addresses, and property information, etc.
Details on the amount paid and the tax deposited
5. Select Proceed.
6. On the confirmation screen, verify and confirm the information entered.
7. The acknowledgement number and two options – "Print form 26QB" and "Submit to Bank" – are displayed on the screen.
8. Click Print form 26QB to print the form.
9. Select "Submit to Bank" to initiate an online payment via internet banking.
10. If the buyer does not wish to deposit the TDS via internet banking, he may print out Form 26QB and submit it to the bank branch along with the payment.
11. After payment is made, a challan counterfoil is displayed with the CIN number and payment information. This counterfoil serves as evidence of payment.
The procedure for downloading Form 16B
1. Visit the TRACES portal at www.tdscpc.gov.in and log in.
2. Become a tax payer
3. Select "Form 16B for Buyer" from the download menu.
4. Enter the transaction information for the transaction for which a form 16B is required.
5. Enter additional information such as the assessment year, the acknowledgement number, and the seller's PAN number.
6. Select Proceed.
7. On the confirmation screen, verify and confirm the information entered.
8. A page titled "Download Request" will appear, containing the Request number.
9. Select the "Requested Downloads" tab to begin the process of downloading the files for which a request has been made.
10. Locate and select the request number (generated at the time the request was raised).
11. To download the file, click on "HTTP Download."
