Purchasing a property is a major financial decision, and understanding the details of Tax Deducted at Source (TDS) can help you avoid legal issues and economic setbacks.
Understanding TDS on purchase of property is crucial for both buyers and sellers. It assures transparency and compliance with tax laws, preventing future disputes. By following the correct procedures, you can make your property transaction smooth and hassle-free.
Let’s dive into everything you need to know about TDS on purchase of property.
What is TDS on purchase of property ?
TDS, or Tax Deducted at Source, is a way of collecting income tax in India, where the payer deducts tax before making specific payments. When it comes to property purchases, TDS ensures that the transaction is reported to the Income Tax Department, making it harder to evade taxes.
When is TDS Applicable?
TDS on property purchases comes into play when the transaction value exceeds ₹50 lakhs. This threshold applies to residential, commercial, and even industrial properties. If you’re buying a property and the sale consideration exceeds this limit, you’re mandated by law to deduct TDS.
Who is Responsible for Deducting TDS?
The onus of deducting TDS lies with the buyer, not the seller. As a buyer, you need to deduct 1% of the total sale consideration as TDS before making the payment to the seller. For this purpose, the seller must provide their Permanent Account Number (PAN).
Rate of TDS on Property Purchases
Currently, the rate of TDS on property purchases is 1% of the transaction value. This rate has remained consistent to ensure simplicity and compliance. However, any changes in tax regulations can alter this rate, so staying updated is crucial.
Calculating TDS on Property Transactions
Calculating TDS is straightforward. If you’re buying a property worth ₹60 lakhs, the TDS amount would be 1% of ₹60 lakhs, which equals ₹60,000. This amount should be deducted from the payment made to the seller and deposited with the Income Tax Department.
How to pay tds on purchase of property?
The TDS amount must be deposited with the government within 30 days following the end of the month in which it was deducted. This can be done online via the Income Tax Department’s website using Challan 26QB. Ensure you have the seller’s PAN and all transaction details handy.
TDS Certificate
After depositing the TDS, you need to provide the seller with a TDS certificate in Form 16B. This certificate is proof that TDS has been deducted and deposited. You can generate Form 16B from the TRACES portal.
Filing TDS Returns
Filing TDS returns is an essential step in the TDS process. You must file the TDS return using Form 26QB, and this should be done within 30 days of the end of the month in which the TDS was deducted. Failing to file TDS returns on time can lead to penalties.
Exemptions and Deductions
Certain property transactions are exempt from TDS. For instance, TDS is not applicable if the property is being purchased from a Non-Resident Indian (NRI).
Additionally, agricultural land transactions are generally exempt from TDS.
Impact of TDS on Buyers
For buyers, TDS affects the immediate cash flow since the deducted amount needs to be deposited upfront. However, compliance ensures that you are on the right side of the law and avoid any future tax complications.
Impact of TDS on Sellers
For sellers, TDS means that they will receive slightly less than the sale consideration. However, they can claim credit for the TDS amount when filing their income tax returns, which can help reduce their overall tax liability.
Common Mistakes to Avoid
Many buyers need to correct mistakes such as incorrect TDS calculations or missing the payment deadline. Ensure that you calculate the TDS accurately and deposit it within the stipulated time to avoid penalties.
Case Studies
Consider the case of Mr Shah, who bought a property for ₹55 lakhs. He correctly deducted TDS of ₹55,000 and deposited it within the due date. In contrast, Mr Shah, who bought a property for ₹70 lakhs, missed the TDS deposit deadline and had to pay a hefty penalty.
FAQs
What happens if TDS is not deducted?
If TDS is not deducted, the buyer might face penalties, and the seller could be liable for additional taxes. The Income Tax Department can levy interest and fines for non-compliance.
Can TDS be refunded?
Yes, if excess TDS has been deducted, the seller can claim a refund when filing their income tax return. The refund will be processed after the income tax department assesses it.
How is TDS handled in joint property purchases?
In joint property purchases, each buyer must deduct TDS in proportion to their share in the property. The total TDS should still amount to 1% of the total sale consideration.
What are the consequences of incorrect TDS deduction?
Incorrect TDS deduction can result in penalties and interest charges. It’s important to ensure accurate calculation and timely payment to avoid these consequences.
Is TDS applicable on the purchase of agricultural land?
Generally, TDS is not relevant to the purchase of agricultural land. However, it’s advisable to verify the specific conditions and consult with a tax professional.
