Most Indians have heard references to the term TDS about income tax. TDS is an acronym that refers to Tax Deducted at Source. The Income Tax Act specifies certain scenarios in which the payments received by a person are made after subtraction of the tax dues. This means the person making the payment must deduct the tax and deposit it with the government. In real estate dealings, too, TDS may be deducted under certain conditions.
Given the high emotional and financial value placed on properties, real estate sales and purchases are common in India. In an effort to curb unregulated sales and black money, the government introduced the Finance Bill 2013 to enable TDS on property sales. Section 194IA of the Income Tax Act reflects the scope and requirements for TDS on property sales introduced in June 2013.
The buyer of the property should deduct 1% of the sale consideration from the payment made to the seller as TDS and deposit this to the central government within 30 days from the end of the month in which this TDS is deducted. This payment can be electronically transferred to the RBI, the State Bank of India, or other authorised banks. TDS on the sale of property can also be made through the TIN NSDL website. The buyer will need to furnish the PAN number of the seller and submit Form 26QB online. The buyer also needs to provide buyer Form 16B as proof of TDS deposit.
The seller of the property must provide a valid PAN number to the buyer at the time of sale. Under this section of the IT Act, if a seller does not provide the PAN or provides an invalid PAN, the buyer may deduct up to 20% of the sale consideration as TDS. Following the sale, the seller must obtain Form 16B from the buyer within 15 days from the deadline of the TDS deposit and add this to his or her income tax filing for the financial year. The seller may also verify the deposit of TDS through the Online 26AS TRACES website.
Understanding Section 194IA and the TDS component of property sale is important for financial planning and legal compliance. It is important to remember that this section does not deal with NRI sellers who may incur a higher TDS rate. The buyer must also remember that the TDS deduction must be made regardless of the capital gains or loss incurred by the seller of the property.
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