Buying a property is not only the realisation of your dreams, but it is also a significant financial decision. And, like with all investments, it is a good idea to research the allied expenses and tax implications before purchasing your dream home. Apart from registration charges, stamp duty, and property taxes, you must also know about TDS (tax deducted at source).
Here is a detailed guide about all you need to know about the TDS implications of buying real estate.
What is TDS?
Per the Tax Act of 1961, tax can be collected at source on incomes such as salaries, dividends, income through sales of assets etc. This is referred to as TDS or Tax Deduction at Source. In these cases, the payers must collect this tax amount (or deduct them from the payment made) and deposit them with the government of India.
TDS on Property Purchase
TDS is levied on the property seller and not the buyer. So why do you need to understand the TDS implications as a home buyer?
This is because you are responsible for deducting and depositing the TDS from the sale amount payable to the seller and depositing it. Therefore, you can register the property in your name only on production of the proof of TDS deposit. Only when you register the property is the sale complete and legal.
How much TDS is levied on a property purchase?
According to new guidelines that came into effect on 1 June 2013, TDS is applicable on all real estate purchases except agricultural land. So the sale of all plots, flats, apartments, individual buildings, and commercial and industrial properties attracts TDS (depending on the property's value).
When the value of the property purchased by you exceeds INR 50 lakhs, the TDS on such a sale is pegged at 1% of the property value. If you buy a property worth about INR 1 crore, you need to deduct 1% of 1 crore or INR 1 lakh as the TDS amount. If the seller is a non-resident Indian or NRI, the TDS levied on the property is 20% of the property's value, irrespective of the value of the transaction. In addition, a surcharge and a CESS are also applicable. This entire amount (TDS + Surcharge + CESS) must be deducted by the property buyer and deposited as Income Tax.
How should the buyer collect TDS and deposit it?
According to the guidelines of the IT Act, the buyer of the property should deduct the tax amount from the payment to be made to the property seller. It is not mandatory for the buyer to have a TAN to make such a deduction. The TDS amount should be deposited to the IT department within the month after the sale. The buyer can deposit this amount online, and it can also be done through the bank.
Paying the TDS online -
The buyer needs to log on to the TIN NSDL website and choose the online form for furnishing TDS on the property. This will require the PAN card and details of the buyer and seller, and the TDS amount. This Form 26QB can be submitted online, and the payment can be made through net banking. Now the seller is required to request Form 16B on the TRACES website. This should be provided to the buyer as proof of TDS deposit.
Delay on TDS Deposit
When the buyer is late to deposit the TDS on the property purchase, the buyer must pay an interest of 1.5% for every month of delay. In addition, there could also be a fine levied for such late deposits of TDS.
TDS on Property Purchase - FAQs
1. Is TDS applicable on the sale of all real estate properties?
TDS does not apply to the purchase of agricultural land. However, TDS applies to all other property purchases if the property's value is over INR 50 lakhs.
2. Who is responsible for the tax deduction at source in case of property purchase?
The property buyer is responsible for deducting TDS and depositing it within 30 days of the month of sale. If there is a delay in depositing the amount, the buyer is penalised.
3. Are there any exceptions to the TDS on a property purchase?
Property purchase under INR 50 lakh is exempt from TDS. It is important to remember that TDS is not charged on the GST component of the sale value. In India, when you purchase a property which is under construction, a GST of 1% is levied on affordable housing and 5% GST on all other residential properties. Therefore, the TDS deducted by the buyer should be levied on the property value, excluding the GST component.
4. Should TDS still be levied if the seller incurs a loss on the property sale?
The TDS amount is to be deducted immaterial from the capital gains or losses incurred by the seller. When a property is previously owned, the seller may plan to take advantage of the provisions for exemption on capital gains tax on the sale of the property. This should not be factored in by the buyer when deducting TDS.
Understanding the financial and tax implications of buying and maintaining a residential property will help you optimise the asset value and plan for the future.
