Comprehensive Guide to TDS Compliance in Indian Property Transactions

A Tax Deducted at Source (TDS) on property transactions is a part of the Income Tax Act, 1961 (specifically Section 194-IA), where the buyer of an immovable property is required to deduct a certain percentage of the sale consideration before making the payment to the seller. This deducted amount is then deposited with the government.

A TDS is applicable when the sale consideration of the immovable property exceeds ₹50 lakh. This applies to all immovable properties (land, buildings, or parts thereof) except agricultural land. Importantly, TDS is calculated on the full sale value, not just the amount exceeding ₹50 lakh.

A The TDS rate for resident individual or HUF sellers is 1% of the transaction value if the sale price is ₹50 lakh or more. For resident companies or other entities selling property, the TDS rate is 2%.

A For NRI sellers, the TDS rate is 20% or more, plus applicable surcharge and cess. However, NRIs can apply for a lower TDS certificate under Section 197 based on their actual capital gains.

A If the stamp duty value of the property is higher than the agreed sale value, TDS is calculated on the higher value (stamp duty value).

A Yes, additional charges such as club membership fees, parking charges, maintenance charges, etc., are included in the total sale value for the purpose of calculating TDS.

A In installment-based transactions, TDS must be deducted on each payment made to the seller, provided the total sale consideration exceeds ₹50 lakh. Each installment payment requires a separate TDS deduction and a separate filing of Form 26QB.

A If there are multiple buyers, each buyer is responsible for deducting TDS on their respective share of the payment to each seller. Each buyer-seller combination requires a separate Form 26QB to be filed.

A Even if the bank directly disburses the loan amount to the seller or builder, the buyer is still responsible for deducting the TDS and depositing it with the government.

A The TDS compliance process involves:
• Deducting TDS: At the time of making payment or crediting the amount to the seller’s account.
• Depositing TDS: Using Challan 26QB within 30 days from the end of the month in which TDS was deducted. This is done online.
• Filing Form 26QB: This form needs to be filed online for each property transaction within 30 days from the end of the month of deduction.
• Providing Form 16B: The buyer needs to download Form 16B from the TRACES portal and provide it to the seller as proof of TDS deduction within 15 days from the date of filing Form 26QB.
• PAN Requirement: Both the buyer and the seller must provide their valid Permanent Account Number (PAN). If the seller doesn’t have a PAN, TDS will be deducted at a higher rate (20%).

A Penalties for non-compliance include:
• Interest on delayed deduction: 1% per month (or part of a month) on the amount of TDS not deducted.
• Interest on delayed deposit: 1.5% per month (or part of a month) on the amount of TDS not deposited.
• Penalty for delayed filing of Form 26QB (under Section 234E): A fee of ₹200 per day of delay, up to the amount of TDS.

A Tax authorities may reassess such transactions as a single unit if there is evidence of an intention to evade TDS. This can lead to the imposition of TDS, along with penalties and potentially GST implications.

A The buyer should encourage the seller to obtain their PAN. In some cases, as mentioned in the article, Aadhaar-based PAN retrieval might be possible to avoid a higher TDS deduction rate.

A An NRI seller can apply to the Income Tax Department under Section 197 for a lower TDS certificate. If granted, the TDS rate can be reduced based on the seller’s actual capital gains, potentially resulting in a significantly lower upfront tax outflow. This certificate needs to be obtained before executing the transaction.