TDS on under construction property

Q: I have agreed a total value with the builder and am now told about the TDS rule. Should I be paying this or should I remove the TDS component when I pay the builder?

Mahesh S,

10th February 2016

Legal in Pune

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As per the rules, the buyer of the property is required to deduct Tax (TDS) and deposit the same with the Government. The rate at which the buyer needs to deduct tax is 1% and it may go up to as high as 20% if the seller does not disclose his PAN. This rule also covers the property purchased through home loan.

Priya Desai, Mumbai

11th February 2016

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Hi Mahesh!

The TDS should be deducted when the property is handed over and the final payment is made. For under-construction property, the buyer is considered to hold an interest in the property and for taxation purpose is not considered the owner until completion.

Aarav Sharma,

11th February 2016

Comment

Hi Aarav,
How to deduct the tax, is it on the entire amount at one go on the payment of each installment?

Sankalp, Mumbai

11th February 2016

Hi Sankalp,
Tax needs to be deducted for all the earlier payments made to the seller and if the payments are being made in installments then at the time of every installment.

pradyumanapte, Mumbai

11th February 2016

And the rate of TDS will be 1% of the sum paid. However, TDS needs to be deducted @ 20%, if the deductee does not furnish PAN.

pradyumanapte, Mumbai

11th February 2016

Thanks for the inputs. From a pure cash flow point of view, will the money be going out of the buyer's pocket or the developer's pocket? For example, if the agreement value is Rs 100, will the buyer be paying only Rs 99 to the developer and the Rs 1 is given by the developer? Or will the entire money come from the buyer's pocket?

Mahesh S,

11th February 2016

Hi Mahesh,
Once the property value is decided, the purchaser pays 99 per cent of that amount to the owner and keeps one per cent for payment to the government.

Priya Desai, Mumbai

12th February 2016