TDS Explained- TDS on purchase of Immovable Property
People often have many doubts regarding TDS (Tax deduction at source) and its related concepts. As the name depicts, TDS is just an indirect mode to collect tax from the tax payer or deductor by the income tax department. In order to avoid tax evasion, Income Tax Act has introduced the provision (TDS) to collect tax.
A certain amount of percentage is deducted by a person at the time of making or crediting specific nature of payment to the other person. In one line, the concept of TDS works on the principle of “pay as you earn”.
The recent provision of TDS for transfer of any immovable property has come into effect from June 1, 2013, with the implementation of Section 194-IA. The finance budget 2013-14 proposed to levy one percent TDS on properties sold at Rs 50 lakh and above. Agricultural land is exempted from the provision.
Things to remember
- As per section 194-IA, the registration of a property essentially requires TDS documents on transfer or sale of immovable property.
- The rate can exceed to 20 percent in case the seller provides an invalid PAN or does not give PAN documents.
- As per analysts, the TDS provision to be implemented does not hold enough clarity. So far the provision is applicable where buyer has purchased an under-construction property prior to June 1, 2013 and still has to make a balance payment after the same.
- Sub-registrars should comply to TDS norms and jot down the permanent address and PAN of seller. Also PAN should be mentioned in all transactions.
Frequently Asked Questions
Who will deduct TDS on immovable property?
The buyer of the property is responsible to deduct TDS on immovable property. For example, if A buys a property worth Rs.50 lakh from B, then A will have to deduct tax at 1 percent (Rs 50,000 ) on sale value and deposit it.
How do you make the payment?
The tax can be paid on any authorised branch by taking a printout of the duly filled form. It can also be paid electronically by filling a form on the Income-tax Department’s website (Form 26QB or “TDS on sale of property”)
Documents you need to give to the seller
Buyer has to obtain a challan for the payment and issue Form 16B to the seller ( i.e certificate of deduction of tax at source (section 194 IA). The form should be given within 15 days from the due date of submission of the challan.
Since the TDS will be charged on gross transaction (not net gains), it will highly impact (cash inflow) sellers when sales are at loss or negligible. Few investment advisors believe that this move will check speculations and decrease frequent transactions of property.
The real estate industry is not happy with the TDS move. Experts opine that it will result in slowdown of demand for homes in metro cities.
