TDS on Property Purchase Above 50 Lakhs: Calculation and Compliance

Income tax regulations help eliminate the circulation of black money in the country. TDS, or tax deduction at source, is one way of keeping financial transactions clean and above board. Here is what you must know about TDS on property purchases above INR 50 lakhs.

Understanding the provisions of Section 194-IA

Section 194-IA pertains to the sale of real estate property with a sale consideration or stamp duty value of more than INR 50 lakhs. This guideline applies to cases when the seller is a resident Indian. The buyer is responsible for deducting 1% of the sale value as TDS from the payment made, irrespective of the mode of payment. The buyer must deduct this amount, deposit it with the central government and provide the seller with a Form 16B as proof of the deduction.

How should the TDS on property purchases above 50 lakhs be calculated?

Let us understand this with an example. If you have bought an apartment for a total sale consideration of INR 45 lakhs, you are not required to deduct TDS on this purchase as the value of the house is less than INR 50 lakhs. Now, if you have additionally paid INR 7 lakhs for the parking area, the total sale consideration adds up to INR 52 lakhs. As the buyer, you must now deduct 1% TDS, i.e., INR 52,000 and deposit this with the government.

What should a seller know?

The property seller should understand the implications of TDS on property purchases above 50 lakhs under section 194-IA. The sale consideration or amount you will receive as a seller will be after a 1 per cent tax deduction. You must provide the seller with your valid PAN number for proper compliance. You must also obtain the updated Form 16B from the buyer after 15 days from the last day for depositing the TDS. This form must be included in your tax filing for the financial year in which you conclude the sale. It is important to remember that failing to provide the PAN number or providing an invalid PAN will prompt the buyer to deduct up to 20 per cent taxes.

What are the buyer’s responsibilities?

If you are the buyer of the property, it is your responsibility to deduct TDS from the payment made to the seller. It is important to remember that you are exempt from the need to have a tax deduction and collection account number (TAN). So, you must deduct TDS even if you do not have a TAN.

You must deposit the amount deducted as TDS within 30 days from the end of the month in which the sale is concluded and TDS deducted. So, if the TDS on the sale of the property is deducted in the month of April, you must deposit it by 30 May of that year.

You can make the payment through the NSDL TIN website or through authorised banks. Once the TDS has been transferred to the central government, you must log on to the NSDL TIN website and fill in Form 26QB.

About two weeks later, you must download Form 16B and give it to the seller for tax filing and compliance. You may incur a penalty if you are late in depositing the TDS.

When does Section 194-LA apply?

Section 194 LA applies when there is a compulsory acquisition of any property (except agricultural land) for a financial consideration or a sum of money. Now, this compulsory acquisition must be legal and compliant with the law in force at the time of the acquisition. In this case, the person acquiring the property must deduct TDS of 10% of the sale consideration or money given to the person from which the property is acquired. This provision is applicable if the original owner is a resident Indian and the amount paid for the acquisition is not more than INR 2.5 lakh (for the financial year).

TDS on property sale for NRIs

The TDS on property purchases above 50 lakhs under Section 194-IA applies only when the property's seller is a resident Indian. If the seller is a non-resident Indian (NRI) or an overseas citizen of India (OCI), the buyer must deduct 20% of the sale consideration as TDS. If the seller has held the property for less than two years, the TDS deducted must be 30% of the sale consideration.

It is important to calculate the TDS amount when selling or purchasing a real estate property, both for legal compliance and to avoid penalties. Understanding the TDS component will allow you to manage your finances more efficiently if you are a seller.